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CEO Salaries vs. Company Profits
By America is still picking up the pieces of the worst financial disaster in decades, and the bulk of the damage struck in the financial market. In a time where you might think banks would be keeping their money internal to repair and rebuild their organizations, we have instead gaped in horror as some 0f these same executives receive multimillion dollar bonuses year after year. In fact, a study performed by the Associated Press in 2008 found that $1.6 billion of total government bail out money (money provided to fledgling organizations intended to keep them from total collapse) went straight to various executives pockets. Today we explore where some of that morally-questionable money went.
Ken Lewis of Bank Of America
The Huffington Post reports that Bank Of America received $25 billion in bail out money in 2008, and an additional $20 billion in 2009 to cover the loss they took when they acquired Merrill Lynch. This massive infusion of government money came only one year before Ken Lewis stepped down from the office of CEO with $83 million in compensation packages. The bank was more eager than some other bailed out companies to pay back its debts to the government, and succeeded in doing so late last year. But the Post makes clear that this was not out of any moral or ethical dedication to their duty, but mostly so that their executives would not be hindered by government pay restrictions imposed on bailed out companies.
Vikram Pandit of Citigroup
In 2008, the same year that Citigroup accepted a $45 billion government bailout, MarketWatch reports that former CEO Vikram Pandit took home a benefits package worth $38.2 million. This package consisted mostly of stocks and options, combined with a $958,333 annual salary. Interestingly enough, Pandit declined the opportunity to be considered for huge bonuses, and committed to working for $1.00 in base pay until the company was back to profitability. Additionally, the CEO reimbursed Citigroup over $170,000 for personal use of the company aircraft.
Martin Sullivan of AIG
In July 0f 2008, CNBC reported that Martin Sullivan retired from the collapsing offices of AIG, but not before pocketing a $47 million stock and benefits package. Only a few months later AIG was approved for $85 billion in government bailout funds. Slate.com reports that this king's ransom was raised from selling off federal securities, bringing the fed down below $200 billion in reserves.
Being the world's largest insurance company, the US government saved AIG to avoid the disastrous outcome on the financial market that would have occurred if the company collapsed. If AIG was allowed to go under, NPR reports that it would have resulted in $185 billion worth of damage to the world financial market, a blow that would have resulted in "substantially higher borrowing costs, reduced household wealth, and a materially weaker economic performance."
Richard Wagoner of General Motors
According to the New York Times, former General Motors CEO Richard Wagoner received a $14.4 million dollar "goodbye" package in 2008. That same year, the US government appropriated $50 billion in bailout money to save the auto manufacturer from tanking. CommonCause.org reports that the majority of this money came from pension and stock benefits, along with a $1.55 million salary.
Daniel Akerson was brought in as Wagoner's replacement, and has gone on record saying that he took the job because he believes in the government's decision to save General Motors. "[The bailout] was absolutely the right decision for this company, for this region, for the manufacturing base of the United Sates," Akerson told the Washington Post. "I wouldn't have agreed to go on the board...if I hadn't agreed with that decision."
Frederick Waddell of Northern Trust
Northern Trust received one of the smallest government bailout appropriations of 2008, totaling just $1.6 billion. This is why it was so shocking to see CEO Frederick Waddell recieve a compensation package of over $6 million that same year. As reported By CommonCause.org, this money came mostly in the form of stock, options, and salary. Under Waddell's leadership, Northern Trust succeeded in paying the off the government bail out in full in under a year. In 2009, the institution issued a press release proudly announcing this accomplishment, and that same year Forbes reported that Waddell's compensation has nearly doubled, increasing to $11.89 million. The raise was no doubt justified by his quick action in repaying the debt.
Lloyd Blankfein of Goldman Sachs
Lloyd Blankfein, CEO of the recently indicted Goldman Sachs, reportedly took home over $70 million in 2008 alone. That same year, Goldman Sachs was bailed out to the tune of $10 billion, leading many to question the rationale behind Blankfein's massive compensation. The Huffington Post claims that that this compensation makes over $125 million over the past 10 years.
In 2009, the company was brought up on charges of sub prime mortgage fraud by the Securities and Exchange Commission, who claimed that the organization deliberately marketed bad loans in a deceptive manner. The Post reports that Blankfein settled with the SEC in July to the tune of $550 million.
Jamie Dimon of JPMorgan Chase
In what feels like a total slap in the face, JPMorgan Chase CEO Jamie Dimon somehow found the budget room to snag a $28 million bonus package in late 2007 despite JPMorgan Chase being in such poor financial shape that they needed a $25 billion government bail out a mere year later. As if this wasn't bad enough, CNN reports that 2009 brought about another round of bonuses for Dimon, this time in the amount of $16 million.
Earlier this year, BusinessWeek announced that President Obama was having dinner with Jamie Dimon to dinner to discuss financial reform at the White House. Since the meeting, no official reports have been released disclosing what was discussed.
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17 Comments
I do believe this is a source of business information. Perhaps the article could have been positioned in a more factual manner, but the point is made. What has been lacking is the accountability and integrity in business. To bring forward this information is to bring awareness, which hopefully provides an incentive for people to act and create standards where actions such as this are not repeated and certainly not tolerated.
Sadly the focus is on banks, but let us not forget Enron, and the untold story of Nortel Networks. The story where a company unfortunately lied to their employees, provided contracts they refused to honor and took employees pensions all occurring with the most significant impact in 2009 during the biggest downturn in the economy. Yet executives took significant bonuses for what? http://www.vision2mobile.com/news/2010/03/nortel-paid-mike-zafirovski-2-3m-wh... The company was bankrupt and being auctioned off to the highest bidder. I have always believed that bonuses are earned and given based on performance of a company. Nortel is just one example of many I can think of who acted without ethics, but most importantly why is something like this allowed to occur?
I believe this article perhaps stirs the emotions and hopefully gets people thinking and more importantly acting on the fact that there needs to be more regulations and accountability in business. I am not suggesting a dictatorship or such stringent rules that businesses cannot run efficiently or profitably, but the lack of ethics and integrity has to stop.
Let's not repeat the past, rather create a positive future for business.
Sure, it seams alright to skim .1% off the top right? Well your extremely small percentage isnt fooling anyone; that .1% represents hundreds of millions of dollars. Hundreds of millions of dollars that came from the tax payers pockets. Hundreds of millions of dollars that this country couldn't afford to lose ( seen the national debt latly?) Hundreds of millions of dollars that went from the public sector into the private sector; we aint ever seeing that money again. Putting it into a percentage serves no purpose but to make us feel a little bit better about getting raped by big business.
Clearly the referral to money paid in one year as bonuses, relating to problems the next is a bit dicey, but it is a bit hard to believe that by the time he got the bonus they couldn't see the problems they were facing for the upcoming year. I know the theory, but aren't "Captains of Business" suppose to be making sure the businesses stay solvent? Unfortunately their new mantra seems to be the very old "Rape and Pillage" approach.
SKH
I was at the EDS Board meeting when then CEO Dick Brown, after ordering 1000's of layoffs of US employees and sending their positions overseas, was asked how he justified his salary and bonuses when the rank and file at EDS had not seen a raise or bonus in years. His response shocked everyone in the room, and sickened the surviving US EDS rack and file, "I have to make this kind of money, I have a very expensive Wife!" And when the man finally left EDS he further RAPED the Corporation with his "Golden Parachute" payout. It is really nice to get paided to be fired!!!
And...? Most of these guys' bonuses are around .1% of their companies' bailout, unless one million is not one one-thousandth of one billion anymore.
And, tax payers gave them their hard earned money. These so called "bailouts" were simply a heist. These guys weren't stupid as they managed their companies. They were smart, well-connected, and knew damn well how to hold the nation hostage. The problem is rampant though, with executive pay. These whipper-snappers, come strolling into established, profitable and stable corporations. They offshore all the labor, cut all the workforce, and cook the books so it looks like they did something wonderful. If they get out quick enough, before the shit hits the fan, they look good to investors and the market and they move on to rip off another company... and in their wake, they leave devastation, thousands of mothers and fathers without jobs, simply so they could take it all... buy another yacht, another jet, and 15 vacation homes around the globe. They have no loyalty to nation, they have no respect or care, just evil greed. There is your "And...?"
I remember what Art Rooney said to Terry Bradshaw after he led the Steelers to 3 Super Bowl championships and wanted a raise to $600,000/year. It applies here:
"There isn't a quaterback on earth worth $600,000." What do these men do that warrants tens of millions of dollars annually? They don't send a man to the moon. They haven't discovered the secret to "cold" fusion. Most cannot even drive a car. The only capacity they have is to make decisions that cost millions (billions) of dollars, force millions into unemployment and cost shareholders billions in lost value.
Yet they still are paid these enormous sums.
The only people who have a problem with this article are co-conspirators to these crimes.
Maybe you could use some of the money to learn how to spell and write correctly.
Government subsidized school? Thats a great idea!!!
Learn how to proofreader your posts before hitting Submit. It makes me wonder if I should Take you seriously.
If you don't like that they are taking tax money then stop paying your taxes.
Some are worth it if they can raise the stock price sufficiently. Problem is most don't ie JPmorgan. Stock price for last 10 years is just about flat
"Rape & Pillage"...in many more ways than the one mentioned here. These companies which caused the financial hole we are in are now restricting their hiring of qualified candidates who suffered during the crisis. We cannot get mortgages. We cannot sell our homes. And in the past couple days, I have been told by recruiters that, to work for a financial company now, you must be unemployed less than 6 months, and you must have at least good credit. I've been working for financial companies nearly my entire adult life (30+ years) with no issues. Suddenly, in this financial crisis world, I'm a liability. Yes, I highly object to the upper echelon of the companies responsible for this situation being paid such outlandish rates, while the rest of us are being denied jobs with those companies because we suffered during that crisis. Let's mutiny against them! Pull your money out of the large corporations, and bolster the economy by investing with the smaller, local community organizations, such as credit unions.
Good article!
It has long been discussed how to address high earners within corporations whose take home pay appears to be highly disproportionate to their relative contribution to their company. The question becomes whether there is a way to fairly assess at what level personal profit taking reaches unethical levels and how to moderate or tax those earnings without shaking the very underpinnings of our democratic, capitalist society. We cannot simply cap pay levels or regulate them according to various positions. If a company is doing well, shouldn't its leadership deserve to earn more? Choosing a specific high earning level for all earners nationwide upon which to levy higher levels of taxation feels arbitrary and simply a 'tax on the rich'. Most people don't disagree that levying a greater tax on those making disproportionately more than the average worker makes sense - the question is how to decide at what level such taxation would be justifiable and appropriate.
My suggestion is considering amending our tax code to assess personal earnings relative to average pay within one's own company. Once personal earnings exceed a certain multiplier such as 15 or 20x the wage of the average employee in that company, the high-earning employee would have choices, several of which would keep their tax bracket the same and one would see it increase.
They may choose to reinvest the additional personal earnings in their company for R&D, in a company group investment plan, donate it to a charity of their choosing, or they may choose the additional take home pay while incurring a raised tax rate.
This assumes that in an efficient organization, all members are contributing a necessary function to the company's bottom line and that at a certain level, there becomes an unethical disparity in pay within an organization. A key benefit of this approach, because the evaluation would be between employees of the same company, is that it would encourage diligent and focused leadership, highly efficient org structures, and directly contribute to strengthening middle class earnings based on the actual contribution of those employees.
For example, assuming a 20x multiplier, if execs want to make more than 1mil a year, and average employee pay is only 50k... company leadership could first vote to increase average company pay 5k to boost their own potential earnings 100k before entering a higher tax bracket. If enhancing pay in a small way for the common worker (who is the lifeblood of any organization) is not affordable, ie the money isn't in the budget for that, then business leaders should probably focus on making their company more profitable before paying themselves inordinately large salaries and bonuses. I would apply this model to all employees within an organization, including non-executive direct producers such as salespeople, doctors, etc.
The idea is that all members of an organization are crucial to the function and collective earnings of that organization, and there is a level of disparity above which additional personal earnings within the organization cannot be supported by any rational justification in a healthy society. This considers a healthy society to be one where the majority of its members prosper relative to their efforts which contribute directly or indirectly to the prosperity of others.
Thanks for this article. It shows the really shoddy "journalism" you engage in. The number of false comparisons, editorial statements presented as facts, insinuations, etc. is just remarkable. Your mission is "to make business expertise available to everyone." How exactly does this article do that?
It's fine that you don't like that bankers were paid a lot. Lots of people agree with that. You could have made that case using facts. Statements like
"In what feels like a total slap in the face, JPMorgan Chase CEO Jamie Dimon somehow found the budget room to snag a $28 million bonus package in late 2007 despite JPMorgan Chase being in such poor financial shape that they needed a $25 billion government bail out a mere year later" are the worst form of false comparison.
It's like saying "Scott Albro irresponsibly took his family to Disneyland in 2007 when he could saved that money and given it to families who lost their homes in 2008." It assumes knowledge of the future when making current decisions.
You may want to decide if you want to be the Huffington Post or a source of business information.There's a clear difference between the two.
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