Home Economics Exorbitant CEO Compensation Becomes Outright Greed.

Exorbitant CEO Compensation Becomes Outright Greed.


Fitzgerald, when he was still young, once wrote: “The rich are very different from you and me.” And Hemingway, when he had seen more of life and was more cynical replied: “Yes, they have more money.” Of course, Fitzgerald meant the very wealthy dynasties that for generations encompassed the principal rich in this country, with a moderate number entering or leaving each generation. A certain few people had incomes so monumental that they created little dynasties that passed from generation to generation. Inherited wealth, interconnected wealth that seeped into the very core of society and became part of the landscape.

The early New York Dutch and the Boston Brahmins, the early rich like the Cabots, the Goelets, the Girards, the Astors, the Biddles, the Browns and the Vanderbilts…all were rich in the way Fitzgerald meant “rich.” And then came the merchant princes and the “robber barons” of the second half of the 19th century who merged into that culture. Unapproachable, untouchable, predictable, powerful rich. People were born into such families and married under the rules of those families and died as members of those families. For good or ill, it was a distinct class of people. Those were Fitzgerald’s rich and they were, indeed, different from the bulk of society.

Today, we have another category of rich, more like Hemingway’s rich…average everyday people with one particular distinction–they found their way to a place where they make more money. Much more money than the rest of us. They either set out to be corporate managers or they helped found corporations or they got lucky and were in the right place at the right time. Or they went to Wall Street to make more money at a time when finance had been allowed to become little more than a gamble, so why not be rewarded like a gambler?

The problem comes in when you consider that many top executives in corporations have been able to engineer systems that enable them to be paid no matter what happens. They leverage their very position to increase their income and prevent their dismissal. They hire a board of directors to essentially approve of their actions, including their own pay packages, bonuses and retirement. A study reported by The Wall Street Journal shows exactly the kinds of compensation the new super-rich management class are now paying themselves. Some of their companies make money. But many others do not.

Before you begin to react in the typical Neocon way that, yes, these people do make lots of money, but they have exceptional skills, blah, blah, let me give you this one example. Fifty million people in this country have no healthcare. Healthcare insurance is so expensive that most people, middle-class executives, when laid off, cannot afford it even when their severance packages are equivalent to their previous pay. The greatest cause of personal bankruptcy in this country, well over a million each year, is health care costs that exceed what people can afford to pay.

CEOs of health care companies last year had a median income of $13.8 million dollars.  That is an annual check. Not their career earnings. If you work there five years you can comfortably figure that you will have earned over $60 million dollars. In that same period innumerable women, children, elderly, poor, middle class will have died from lack of adequate medical care and five million more people will have gone bankrupt because they could not afford the premiums to support the company that paid the top executive $60 million dollars.

But it is not only in health care. How many corporations paid their CEOs enormous wages, but the corporations actually lost value or profits. Take a look at these people, some from Wall Street, some not, who did not cover themselves with distinction, but nevertheless took home the bacon.

Vikram Pandit CEO of Citigroup made–last year only–$38.2 million. Citigroup stock fell 78% and the corporation, the stockholders, lost $124 Billion in value. In actual profit and loss for the year, Citigroup lost $27.7 billion. Late in 2008, the U.S. taxpayers agreed to infuse Citigroup with $45 billion in taxpayer funds. In addition, the government agreed to back an additional potential $250 billion in potential Citigroup losses from bad assets.

Ken Blankfein, CEO of Goldman Sachs last year took home $54 million dollars. This year we put $20 billion, through the AIG bailout, into Goldman Sachs.

Ken Chenault of American Express made $28.6 million–in one year–while American Express lost 65% of its value and cost shareholders $38.5 billion.

CEO Sanjay Jha of Motorola made $104 million while overseeing a 75% stock plunge which wiped out $27.9 billion in stock market value. In addition, in 2007 they lost $4.2 billion.

So, just how different are these CEO rich from you and me. Could we have lost $4.2 billion for Motorola? More? Probably. Less? Maybe. But if I were a Motorola stockholder I would want to find out. In the meantime, maybe we should begin to rethink whether at least the stockholders and certainly the American taxpayer should be the ones who decide how much an under performing CEO is worth…not merely his hired hands on the board of directors.

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