This fiasco begs many larger questions about our comfortable, albeit often misguided, way of life.
The sub-headline in a BusinessWeek article by Jack Welch, who used to run General Electric, and his wife, Suzy, summed up what defenders of capitalism usually have to say about this issue: “The free market may at times overcompensate. But there’s not a better system.” They acknowledged that “underperforming CEOs sometimes end up getting huge sums of money just to go
Then the couple went on to explain that some folks like Carly Fiorina, HP’s former head honcho, have generous severance deals (also known as “golden parachutes”) built into their employment contract as an incentive to sign on, while Chuck Prince and Stan O’Neal left Citigroup and Merrill Lynch, respectively, with stock grants and compensation earned during happier times. “Such endings look wrong and quite understandably give critics a platform,” they wrote before launching their defense, lamenting the rising tide of political correctness on this issue and decrying the mere thought of government involvement.
Give me a break!
The business imperative associated with executive compensation means there’s a certain price to pay for attracting and retaining a superstar in the corner office. Fair enough. I don’t have a problem with CEOs being paid well for exemplary performance, though God forbid they should be allowed to fly away in a golden parachute after not meeting earnings targets or burnishing shareholder value. It’s the American way and cornerstone of a free-market economy, which, in theory, is a smart and noble way to work, but when put into practice, it can be a messy proposition.
To me, there’s clearly a moral imperative that trumps this thinking, especially during the nation’s worst financial crisis since the Great Depression. The question is, how much pay is enough to live on comfortably without arrogance and disregard for one’s underlings? Is it $3 million? Is it $50 million? Is it $1.5 billion? I have a close friend in Portland, Oregon, who can stretch a greenback like nobody’s business and manages to live fully and happily on just dollars a day.
So-called variable pay packages that reward performance and encourage employee ownership once held great promise but were overshadowed by questionable executive comp packages and golden parachutes. Other factors have included stock-option backdating scandals, as well as so-called underwater pricing following the dot-com bubble burst and lopsided 401(k) plans that were overloaded with company stock (Enron and WorldCom produced two of the most frightening cautionary tales).
The trouble is that a growing concentration of wealth means a greater gulf between occupants of the corner office and average working Americans. There has been a sixfold increase in CEO pay among the Fortune 500 since 1980, and depending on the source, chief executives are said to have earned anywhere from 179 to 369 times the pay of an average worker.
Even if the most conservative estimate were accepted as the gospel on this issue, you’d be hard pressed to find many, if any, true believers who could argue that this disturbing phenomenon stands for anything more than greed and an embarrassing concentration of wealth.
One economist suggested that the earnings gap between the elite and middle class in the U.S. is twice as much as in the U.K. and three times France, which is a whole other argument. It’s no wonder so many of us have to deal with the “ugly” American stereotype abroad.
As a result of this hot-button issue, Uncle Sam and corporate-governance proponents have kept a much more watchful eye on incentive pay packages to help keep executives in line and save employees from themselves. Although well-intentioned, the danger is that too much oversight can serve to choke off business innovation. So we have to be careful about the delicate balancing act between preserving capitalism and creeping too far afield toward socialism, as conservative commentators fear.
I’d like to see a return to the days when hope was in the air about employees being able to share in the spoils in an increasingly competitive global economy. I’d also like to see more corporate chieftains willing to make sacrifices for the good of team and lead by example. Some of the more notable cases in recent years include:
* Robert Shillman of Cognex, who stopped taking a salary in April 2001 and bonus in 2004.
* Robert Miller of Delphi Corp., who cut his annual salary to just $1 after asking for cuts of up to 40% from hourly workers.
* Doug Parker of US Airways, who declined a $770,000 bonus in deference to employees who endured their share of painful cutbacks.
* Susan Lyne of Martha Stewart Living Omnimedia, who asked her board to salt away $200,000 of a $625,500 cash bonus in 2005 as seed money for an employee bonus pool.
* John Mackey of Whole Foods, who despite his recent troubles, has presided over a culture that sought to cap the executive pay ratio at 14 times the average worker’s pay.
I’m not suggesting a Marxist-inspired redistribution of wealth nor begrudging CEOs for banking well-earned dollars – just a rethinking of Capitalist zeal to ease the system’s extremes, correct any perceived imbalances and aspire to true pay-for-performance packages. There’s just no escaping this moral imperative and the time to act is now.