Buy that $-6,000 shower curtain and bill it to your shareholders.
Dear Readers,As one of America Inc’s poster boys, I love to be under the arc lights 24x7. But if you have spotted dark circles around my eyes these days, blame it on those obscene banners on executive compensation.I, however, have mastered the art of looking beyond the obvious and am confident that the recent nationwide poll in some papers was rigged: Isn’t it impossible that 80 per cent of the Americans feel that CEOs are paid too much?
After all, I have been trying my best to keep my pay packet a secret. But some people have a strange way of finding things out. That’s not a surprise as they even went through Jack Welch’s divorce papers to learn something that even GE didn’t disclose initially. The former CEO’s retirement package included a Manhattan apartment for life, expensive country club memberships and even the free use of a corporate jet.
However, some confessions are in order: John Kenneth Galbraith was on the dot when he said the salary of the CEO of a large corporation is frequently in the nature of a warm personal gesture by the individual to himself.
Richard Fuld, chief of Lehman Brothers, is one such man who never forgot to indulge in such “warm gestures”. Fuld, who earned $17,000 an hour for driving his institution into the ground, built an extravagant culture in granting stocks to employees.
But why blame Fuld and his team alone? I am sure you know the famous story about the former CEO of Tyco who purchased a shower curtain for $6,000 and billed it to the shareholders.
Allow me to give some more examples of this generosity. Less than a year before Merrill Lynch was forced into a takeover by Bank of America, Stanley O’Neal walked away from the investment bank with a package that is now worth about $66 million. There are quite a few others. Two years ago, Bob Nardelli, former CEO of Home Depot, and Hank McKinnell, former CEO of Pfizer, were ousted from their jobs following mediocre performances, but both walked off into the sunset with over $200 million severance packages.
But I am surely envious of the fired Hewlett-Packard CEO, Carly Fiorina, not because she got a severance package of $42 million, but because she has managed to figure in the presidential campaign — albeit for not-so-palatable reasons.
Democrat Presidential nominee, Barack Obama, has just released a new ad, “Parachute”, that ties his Republican competitor John McCain to so-called golden parachutes for business executives. The 30-second ad spotlights Fiorina as a symbol of excessive executive pay. Obama is shown in the ad saying, “You’ve got corporate executives who are giving themselves million dollar golden parachutes and leaving workers high and dry. It’s an outrage”.
Obama’s outrage could be a cause for concern for people like me if he manages to become the next President. It’s sad that he is reeling out figures on how CEOs of companies took $10.5 million in pay, 344 times that of the average US worker. Such disclosures will only make our life more difficult.
Or, will it? President Bush is apparently toying with the idea of including a provision in the bailout plan that prevents executives of bailed-out companies from getting severance packages. There is also talk about some kind of restriction on our salaries. But I am not losing heart. After all, the government has a horrible track record as an executive compensation consultant.
Sample this. In the early 1990s, the Congress ended the tax deductibility of executive salaries above $1 million. The result was predictable: Instead of straight salaries, we invented incentive-based or performance-based compensation, which was outside the tax net.
As a result, my average base salary has risen marginally in the past few years, but alternate types of compensation such as restricted stock, performance bonuses, long-term incentive plans and stock-option grants have skyrocketed.
So I am confident of finding a way out. If nothing else works, the following time-tested argument will come in handy: How to best compensate company leaders should be left to the boards of directors and not the Congress, and that limiting executive pay will be counter-productive.
What gives us confidence is that even Treasury Secretary Henry Paulson was till recently the CEO of Goldman Sachs and is the beneficiary of stock options estimated to be over $500 million. He surely can’t forget his brethren so easily.
I am of course worried by the bad examples set by people like Robert Willumstad, former CEO of AIG. Last week, he rejected a $22- million severance payment on the grounds that he was not able to execute the restructuring plan he had developed. Let their tribe decrease.
I am also a firm believer in the age-old wisdom that all of you have very short memories.
6 months ago