UPDATE
Merrill Lynch, Goldman Sachs, and Morgan Stanley have all announced layoffs in the thousands.
Do you all know what else they have in common?
All three of these investment banking companies’ CEOs made the Associated Press’ top ten highest-paid, head honcho list.
Last year, Merrill’s CEO John Thain made $83.1 million
; Goldman’s Lloyd Blankfein
took home $54 million and Morgan Stanley’s John Mack brought in a hefty $41.7 million.
Clearly the financial sector is struggling.
This from Financial Week:
In April and May, financial services companies announced plans to cut a total of 39,000 jobs, the highest number since last August, when the credit crunch first started belting bank’s bottom lines, according to John Challenger, CEO of outplacement firm Challenger Gray & Christmas. So far this year, there have been 66,000 announced cuts in the financial services sector through the end of May—equal to 43% of the 153,000 layoffs recorded in all of 2007.
This means deep pain for all those workers who saw the financial world as a secure career. But obviously the pain isn’t being felt by the guys in the cushiest corner offices.
And we’re not just talking finance.
This from USA Today:
Rick Wagoner, CEO of General Motors, (GM) announced this month the company had to close four plants that make trucks and SUVs because of lagging demand as fuel prices soar. That followed the posting of a $39 billion loss in 2007, a year when its stock price fell about 19%.
And Wagoner? His pay rose 64%, to $15.7 million.
This type of disparity always gets me scratching my head. What the heck were the board members of these companies thinking? They are the ones who decide to hand over buckets of money.
Isn’t this a good time for CEOs to at least look like they’re feeling some of the belt tightening? Seems more ethical, no?
UPDATE “When it comes to fairness, it looks bad and it is bad,” says business ethicist Jared Harris, about fat CEO pay at a time of cuts among the rank and file.
Harris, assistant professor of business administration at The Darden School and Fellow with the Business Roundtable Institute for Corporate Ethics, says the board members should be asking themselves why they’re hiring a CEO and how they can incentivize that CEO to do what benefits all the stakeholders of an organization and that includes the employees. If workers believe an organization isn’t being fair, he adds, they will eventually leave.
He believes we’ve all come to think about what will create value for shareholders in a vacuum. That you pay CEOs bails of money to take actions that will prop up a company’s stock price. But, he says, that’s not a good long term strategy.
Offering insanely large payouts to the executive team, he adds, has been proven not to boost the bottom line and it can also increase the risk of corporate monkey business. “I’ve done work that shows if you give executives big incentives the likelihood of them cooking the books goes sky high,” he says.
I’d like to know what you all feel about this. Do these lavish payouts for bigwigs undermine Corporate America and our society as a whole? Or is this just the way a free market should work?
August 25th, 2008 at 10:44 am
The tired mantras boards recite in times like this are:
1) We need to pay that much to be competitive (when shopping for executives).
2) They did an excellent job overseeing the company during a rough period, so they deserved a bonus.
3) It would be much worse without [insert executive name here]’s leadership.
I think it’s all [insert favorite expletive word or phrase here]!
Hey, shareholders of the world! Instruct your boards to fire ALL of your high-cost execs (after changing corporate policy to sever their parachute strings, of course). Then, re-hire a new cadre of executives (or, preferably, promote from within) with none of them getting more than 5x the highest worker salary. Have the boards cap bonus compensation at a meaningful level. Spend some of the money you save bolstering employee benefits, and invest another chunk in research and development.
We could have weaned ourselves off petroleum for fuel by now if companies had created the vision and pursued it. Now most of them are just interested in maintaining margins and fattening key stakeholders’ (i.e., executives’, large shareholders’) wallets. That’s the same mentality that keeps the overpriced executives in office. Enough is enough.
If any of you have read any of my earlier posts on Eve’s blog, you know I’m no fan of labor unions. This is one area, however, where I feel the labor movement could be of great use. If workers would strike (whether currently in a formal unions or not) and demand new, reasonable executive pay structures, companies would have no choice but to pay attention. To be successful, however, it would require huge numbers of workers to establish picket lines, especially in sectors where unions are not strong.
I may not be a big supporter of unions, but I am a huge opponnent of injustice.