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On Executive Compensation

An acquaintance of mine lost big money in the Lehman Brothers collapse. He said it was the first time a citizen was ever held-up by a bank. On TV, I watched people walk out the back door with the vestiges of their careers in a cardboard box, and I thought, “Who is responsible for this? Who broke the social contract between the people on top and the people down below? Is it all just Greed?” There is no simple answer, but let’s start at the top:

“CEO-Pay (That’s Pig Latin for “Executive Compensation)”  This is a survey of executive compensation & benefits derived from my own experience and research. This is the stuff the CEO’s receive (I refuse to say “earn”) for the big jobs. When I joined my first big firm in 1964, the CEO made 7 times what I did (plus stock and bonuses tied to company growth and profitability). I thought that was outrageous. God keep me simple. In 2011, the average Fortune 500 CEO made 380 times the average employee. What does all that treasure come from?

There are stock options & bonuses, retention and otherwise, immediate and deferred, guaranteed, time related, and sometimes (but not always) tied to performance; debt forgiveness; a comprehensive pension plan (with payout boosters like SERPS and Rabbi Trusts for the chosen few); health, life, property, flood, and long term care insurance; educational benefits, use of company property (houses, limos, aircraft, yachts). There’s paid staff including personal assistants, security, drivers, maids, cooks, gardeners, and paid memberships in private clubs, golf courses, airports & marinas. There are upgrades of personal property for security reasons, home offices, entertaining and the company purchase of personal property (like the current house so they can build a bigger one);  don’t forget the architects, decorators and other on-tap experts who come in handy as advisers and general contractors for the main manse and the vacation home(s).

There are generous entertainment benefits including dining, sports boxes, theater, etc. Free parking and personal grooming perks are nice, as are dog walkers, and committee memberships at museums and schools that bring exotic benefits as well.

There are paid subscriptions, complimentary company products, and free lunches at work; discretionary time and choice of work locations; unsolicited but desirable gifts come in the mail. There are reciprocal paid board memberships on other company boards, including membership on their compensation committees so one can take care of one’s friends as they take care of one in return.

There are paid subcommittee memberships, consulting contracts, purchasing discounts, low & no interest loans, and the best legal and tax advice available. We mustn’t forget the Golden Parachute and other termination benefits like multi-year “poison pill” payouts in case of a takeover.  There will be the retirement use of company property and facilities, staff, and long term advisory contracts. One always meets the “best people,” has influence, and never waits in line.

Many benefits apply to both the CEO and their family. You won’t find these written in any one place; you have to read the arcane language and paw through footnotes and fine print, because CEO’s can use shareholder money to hire experts to make it difficult for shareholders to locate and understand what the CEO is receiving.

Let’s see, have I missed anything? Oh yes: they get paid a handsome salary too. By the way, once again, none of this is necessarily tied to performance. The old concept of “Pay for Performance” often stops outside Executive Row.That may be why the worker bees are walking out the back door with their careers in a cardboard box.

And, as to those loyal defenders who say we can’t change any of these agreed upon deals now, after the fact, I say consider this: We reneged on countless land deals with the American Indians; we reneged on pension & benefits promised the Filipinos who fought beside us in World War II; we reneged on relocation promises made to the Montagnard mountain tribesmen who helped us in Vietnam. And God knows what the fall-out will be when we pull out of Iraq and Afghanistan completely.

Where’s the harm in stiffing a few over-stuffed CEOs?

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