Executive Compensation
Huge Bonuses Paid to Executives who Ruined Companies
When Richard Fuld appeared before a U.S. Congressional hearing on October 6, 2008, Republican congressman, John Mica, told him, “If you haven’t discovered your role, you’re the villain today. You’ve got to act like a villain.” Mr. Fuld was the Chief Executive Officer of Lehman Brothers, a storied financial services company that went bankrupt on his watch. And, while the company was failing Fuld was paid about half a billion dollars.
Nicholas Kristof wrote about this compensation package in The New York Times on September 17, 2008: “Last year, Mr. Fuld earned about $45 million, according to the calculations of Equilar, an executive pay research company. That amounts to roughly $17,000 an hour to obliterate a firm.”
Many Multi-Million Dollar Pay Packages
Scores of other executives in other companies have received similar amounts of money to Fuld. As Mr. Kristof points out, “Three decades ago, C.E.O.’s typically earned 30 to 40 times the income of ordinary workers. Last year (2007), C.E.O.’s of large public companies averaged 344 times the average pay of workers.”
Among those receiving generous bonuses were executives at the American International Group (AIG), a company deeply involved in the sub-prime crisis. As the BBC reported on March 2, 2009, the corporation set a new world record for financial failure: “Insurance giant AIG has reported a loss of $61.7 billion…in the final three months of 2008 - the largest quarterly loss in corporate history.”
However, despite those staggering losses, the company’s senior managers rewarded themselves with bonuses of $165 million. And, the money to pay for those windfalls came out of the $180 billion American taxpayers have put into the company to keep it from going bust.
The word “outrage” doesn’t do justice to the feelings of the general public, although it was the word most frequently uttered, even by President Barack Obama. On March 16, 2009, he said, “How do they justify this outrage to the taxpayers who are keeping the company afloat?”
Some Executives Will Face Charges
Back on October 14, 2008, The Economist ran an article under the heading “The Guilty Men of Wall Street.” The magazine pointed out that, as far as it knew, people such as Richard Fuld or AIG chief executive Ed Liddy had not committed any crimes. They may have been guilty of bad management, but that isn’t an indictable offence.
However, Joe and Jane Citizen who have lost their jobs, their homes, and most of their life savings want to see someone punished. So the politicians will probably find some people upon whom the blame can be pinned. As The Economist put it, “…persuading a jury to give the benefit of the doubt to a multi-millionaire banker is exceedingly difficult, making it easy for the government to win a case on thin evidence.”
Government prosecutors will use a tactic that they polished to perfection during earlier cases brought against business executives. It’s called “flipping” in the legal trade. The Economist says it’s a process “in which lower level employees receive leniency in return for testifying against their bosses.”
Another approach is to try to trap executives in their own statements about the the health of their businesses. Here’s The Economist again: “This ploy led to the conviction of Kenneth Lay, Enron’s former chairman, who said the firm was in good shape as it hurtled towards bankruptcy.”
Throught 2008, senior executives at both Lehman and AIG gave assurances that their companies were in good shape.
Massive Executive Pay
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