|
[Back]
[Home]
[Up]
[Next]
| |
|
EXECUTIVE PAY-WATCH
/CORPORATE GREED |
|
 |
|
"I stand
with Warren Buffett. It's time for Congress to stop
coddling the super-rich and make them pay their fair
share."
Leo Gerard's
Click here to sign your name:s...click for more
|
Appalling Greed: Richest 400 Average $270.5
Million Incomes, Pay Almost Nothing in Taxes
Compare that to
1955, when the country's most affluent made far
less money and paid 51 percent of their income
in taxes.
From the blog written by Sam Pizzigati who is the editor of the
online weekly "Too Much", and an associate
fellow at the Institute for Policy Studies.
May 16, 2011 |
In 2008,
the IRS revealed last week, 400 Americans
reported at least $110 million in income on
their federal tax returns. These 400, in a year
that ended with millions of Americans out of
work and home, averaged $270.5 million each, the
second-highest U.S. top 400 average income on
record.
The IRS only started reporting
top 400 income calculations in
2003, and the agency's official
“top 400” totals just go back to
1992. But older IRS data reports
do make top 400 estimates from
some earlier years possible. And
these earlier figures leave the
latest IRS numbers in even
starker relief.
In 1955, for instance, America's
top 400 averaged — in 2008
dollars — $13.3 million. In
other words, the top 400 in 2008
reported incomes that, after
taking inflation into account,
amounted to more than 20 times
the incomes of America’s top 400
a half-century ago.
But 1955’s top 400 didn’t just
make far less than 2008’s top
400. The rich in 1955 paid far
more of their income in taxes
than today’s rich. In 2008, the
new IRS data show, the top 400
paid only 18.1 percent of their
total incomes in federal income
tax. The top 400 in 1955 paid
51.2 percent of their total
incomes in tax.
After taxes, and after adjusting
for inflation, 2008’s top 400
had a staggering $85 billion
more left in their pockets than
1955’s most awesomely affluent.
You don’t have to go
all the way back to 1955 to see
how little today's top 400 are
paying in taxes. In 1992, the
IRS stats detail, only 33 of the
top 400 paid less than 20
percent of their incomes in
federal income tax. In 2008, 253
did.
The main reason: Today’s rich
are getting more and more of
their income from capital gains
— the profits from buying and
selling stocks, bonds, and other
assets — and these capital gains
now face a substantially lower
tax rate than they did two
decades ago.
Some specifics: In 1992, the top
400 grabbed 26 percent of their
income from paychecks and 36
percent from capital gains. In
2008, by contrast, only 8
percent of top 400 income came
from salary — 88 of the year's
top 400
didn’t even have jobs — and
57 percent came from capital
gains.
These 2008 capital gains faced
only a 15 percent tax rate, down
from a 1992 rate almost twice
that high.
Incomes for the 2008
top 400 did dip from top 400
levels in 2007, a year that saw
the top 400 average $344.8. But
the dropoff from 2007 to 2008
turned out to be less steep than
the dip in 2000 after the
dot-com bust.
America’s richest came roaring
back, fairly fast, from that
dot-com setback. How fast will
the next comeback be for
America’s super rich? We won’t
know for sure until next spring,
when the IRS releases top 400
income figures for 2009.
We can, in the meantime, do some
reasonable surmising. Next
year’s top 400 figures for 2009,
we can predict with some
confidence, figure to be real
stunners. One statistic behind
that confidence: In 2009, we
already know, the financial
industry’s top 25 hedge fund
managers averaged a record $1.01
billion, over double the $464
million hedge fund top 25
average in 2008.
|
|
February 17, 2011
USW To Congress: Stop
Focusing on CEOs
and Help Americans Get Jobs
GOP Leadership Fails to Renew Trade
Assistance
Pittsburgh -- The United Steelworkers (USW)
is urging Congress to reinstate funding for the enhanced Trade
Adjustment Assistance (TAA) program begun in 2009 that covers
service workers and those whose jobs were exported to China or
India due to unfair foreign trade.
The program had services slashed over the
weekend when Republicans in the U.S. House of Representatives
voted to block a bill extending the provision. The program
assists workers who have been impacted by trade agreements, such
as the North American Free Trade Agreement (NAFTA), with job
retraining and financial assistance. Opponents are trying to
link the passage of future job off-shoring trade agreements to
TAA.
Last week's vote reduces services for up
to 170,000 Americans, from laid off steelworkers whose work was
sent to China to office workers whose jobs have been outsourced
to India. The Department of Labor was able to retain the program
with reduced funding for one more year, but if Congress does not
act to reinstate funding in the next year, tax-paying workers
will lose a critical program that assists them in remaining
competitive in the global economy.
“Once again, Americans are being put in
the middle of a needless political battle and it’s working
families who are paying the price,” said USW International
President Leo W. Gerard. “While members of the House and Senate
try to win political points and the new leadership focuses on
helping corporations and CEOs, tens of thousands of middle class
Americans who lost jobs through no fault of their own could see
job training and health care disappear.”
“These workers were already cheated out
of good jobs because of bad trade deals. Now, they’re being
cheated out of a second chance by their own elected officials,
many of whom ran on promises of creating jobs,” Gerard said.
“This political gamesmanship has to end so that Americans can go
back to work.”
The USW is the largest industrial union
in North America and has 850,000 members in the U.S., Canada,
and the Caribbean. It represents workers employed in metals,
rubber, chemicals, paper, oil refining, atomic energy and the
service sector. For more info:
www.usw.org. |
Mott’s
Corporate Greed:
Rotten to the Core
by
Tula
Connell, Sep 7, 2010
Dr.
Pepper Snapple Group CEO Larry Young pocketed $6.5
million last year. But he thinks his employees at Mott’s
applesauce plant in Williamson, N.Y.,
should make $20,000 a year. So, the corporate
conglomerate has been trying to
cut $1.50 an hour—$3,000 a year—from the salaries of
the 350 skilled workers, while freezing pensions and
health care.
But there’s no need to bring up CEO pay. Really.
According to Dr. Pepper Snapple Senior Vice President
Robert Callan:
Executive pay is completely irrelevant to the
discussion.
Really. More from Callan in this
great segment from PBS:
The Williamson employees have enjoyed wages that
have exceeded 50 percent of the market for a very
long time. The best example I can give you is one of
our forklift drivers at the Williamson facility
makes $20 an hour. Local market in the Williamson
area a forklift driver will make about $9.90 an
hour—about $20,000 a year.
The Dr. Pepper Snapple Group made $555 million in
profits in 2009, another point that Thomas Culhane, a
Mott’s forklift operator, says is not irrelevant:
I don’t think that’s fair that a
multimillion-dollar company can tell us…you guys
have to accept all these cuts, when they are making
money hand over fist.
Workers at the Mott’s Williamson plant, who process
half of the state’s apples into juice or sauce, have
been
on strike since May in opposition to the
corporate-imposed $1.50 hourly pay cut. A pay cut that
mostly likely will line the pockets of the Texas-based
CEOs.
Northeastern University economist Andrew Sum says
Mott’s, like most U.S. corporations, is keeping the
profit.
It’s not been reinvested in new capital
equipment. It’s not been used to
help purchase new technology. So,
this is the first time that we have ever had where
basically all the gains in income went simply to
corporate profits.
Take action to support Mott’s workers. Go to
www.NoBadApples.org and click on the Facebook
Actions box.
And join others who are tweeting their support of the
strikers to Mott’s. Sign up to follow Mott’s on Twitter
at
http://twitter.com/Motts.
|
|
LEARN FROM THE PAST; BECAUSE WE CAN
January 24, 2010
USW locals 608 & 712 members, we need to heed the information posted
below. About other Union members affected by greedy corporations.
The success and failures handed to them by corporate types who take from the
laborers and give to themselves; because they can.
We have strange times ahead of us. In the light that CEO's are being
paid more than ever before... listing "Industry standards" for the reasons they
all need to make more than their other brothers in pinstripes (ours posting an
accumulative $9 million) . They also,
in these money-restricted times, feel that unbelievably high bonuses and stock
options are justified.... it's industry standard, ah, well hell yes,
because they can.
Also, industry standard is, in lieu of these accounting-defying payouts, is
to fire, lay-off, re-nig and steal benefits promised to their dedicated
employees to pay for these bonuses. The employees who have given life and
limb for their beloved company. Benefits that were promised when young men
and women answer the company's solicitations in local papers.
What makes corporate leaders, who makes more money in one year than most of
the employees of these companies make in a lifetime of employment...including
the benefits they receive, think that they need the 90, 100, 200 thousand; some
times upwards of millions of dollars in bonuses and other compensations?
Even when these companies post losses in the most recent quarter. GREED
doesn't even cover it. Hoarding? Call it what you will, they do it just because they can.
Remember the one with the most marbles at the end of the game wins. No
conscience. It's just business.
I know it truly doesn't mater that they have so much wealth that it could
choke an elephant; but it's the lives of many that are not only affected; but
destroyed. Example in 2008 when GM shut down plants in the east,
laid-off 10's of thousand employees to save the "high price of union wages and
benefits" only to move the plants to Mexico, under a government agreement, and
pay the locals pennies on the union dollar.... and they not only jacked the
price of their cars up; but took huge double digit-millions in bonuses ... oh,
yeah, BECAUSE THEY CAN.
REMEMBER, UNION MEMBERS, BUY UNION MADE! Research which of your future
purchases are still produced by Union Brothers and Sisters and support them and
they will support us.
Jeff Welle
|
Executives Eliminate Worker Pensions, Get $350 Million
Some executives have received huge compensation packages even as their
firms eliminated worker
pensions. Ten large U.S. companies paid senior
executives a total of $350 million in the five years leading up to
terminating traditional pension plans for employees, a new Government
Accountability Office
analysis found. Each company in the study, which does not name the
10 publicly traded companies that filed for bankruptcy in the last
decade, had underfunded its pension plan by at least $100 million and
had over 5,000 workers whose pensions would be affected. The Pension
Benefit Guaranty Corporation, the government agency that insures private
sector pensions, then became responsible for the shortfall. Some
employees who were promised retirement benefits above the PBGC’s limits,
such as airline pilots, say their pensions were reduced. The PBGC
insures pensions up to certain limits, which is $54,000 for a person who
retires at age 65 in 2010. The pension insurer had a deficit of $22
billion in fiscal year 2009.
Executives at some companies received salaries in excess of $10
million dollars in the years leading up to bankruptcy. In addition, many
of the executives also received millions of dollars in
stock awards, income tax reimbursements, retention
bonuses, severance packages, and executive-only retirement plans. One
airline in the study missed nearly $1 billion in required pension
contributions, but managed to pay its top three executives over $50
million in salary, bonuses, stock, and supplemental retirement benefits.
And an insurance company failed to make $29.2 million in pension
contributions, but paid five executives $69.7 million in salary and cash
bonuses during the same time period. Additional corporate perks included
apartments, personal trips on company airplanes and helicopters, club
memberships, legal fee reimbursement, and automobiles.
Representative George Miller, the California Democrat who requested
the GAO investigation, says he is considering legislation that will
freeze executive compensation if the company’s rank-and-file pension
plan becomes significantly underfunded. “It is fundamentally wrong that
executives were able to line their pockets with millions of
dollars from bonuses, stock options, and free joyrides
on corporate jets, while watching their workers’ retirement security
slip into peril,” says Miller. “Executive compensation and golden
parachutes should be aligned to the fate of workers’
retirement
plan. This will create an incentive for executives to
fix workers’ pension plans before they go broke.”
The GAO did not uncover any illegal activity among the 40 executives
under review.
Tell us, should executives get bonuses in years when employee
pensions aren’t fully funded?
|
|
MORE BONUSES... YOU'RE FRICKIN'KIDDING
ME, RIGHT?
AIG Seeks Clearance For More Bonuses - $2.4
Million in Executive Payments Due Next Week
Washington Post Staff Writers
Friday, July 10, 2009
American
International Group is preparing to pay millions of dollars more in bonuses
to several dozen top corporate executives after an earlier round of payments
four months ago set off a national furor.
The troubled insurance giant has been pressing the federal government to
bless the payments in hopes of shielding itself from renewed public outrage.
The request puts the administration's new compensation czar on the spot by
seeking his opinion about bonuses that were promised long before he took his
post.
AIG doesn't actually need the permission of Kenneth R. Feinberg, who
President Obama appointed last month to oversee the compensation of top
executives at seven firms that have received large federal bailouts. But
officials at AIG, whose federal rescue package stands at $180 billion, have been
reluctant to move forward without political cover from the government.
"Anytime we write a check to anybody" it is highly scrutinized,
said an AIG official, who declined to speak on the record because the
negotiations with Feinberg are ongoing. "We would want to feel comfortable
that the government is comfortable with what we are doing."
The payments coming due next week include $2.4 million in bonuses for about
40 high-ranking executives at AIG, according to administration documents from
earlier this year. Though the actual sum may have changed since then, the
payments are much smaller than those that caused the upheaval in March.
Still, officials at AIG and within the government see them as a land mine.
Feinberg, who previously managed the government's
efforts to compensate the families of those killed in the Sept. 11 attacks, has
the power to determine salaries, bonuses and retirement packages for all
executive officers and the 100 most highly paid employees at firms such as Citigroup,
Bank
of America, General
Motors and AIG.
AIG's upcoming payments do not fall under Feinberg's official purview, as
they involve bonuses delayed from 2008. Feinberg is charged with shaping only
current and future compensation. As a result, some Treasury Department officials
believe they are under no obligation to offer an advisory opinion in this case,
which could leave AIG officials to decide the matter on their own, according to
a person familiar with the talks.
In November, AIG's top seven executives, including Chairman Edward M. Liddy,
agreed to forgo their bonuses through 2009. Then, in March, facing pressure from
Treasury Secretary Timothy F. Geithner and other government officials, the
company restructured its corporate bonus plans for the remaining top 50
executives. As part of this agreement, the senior executives were to receive
half their 2008 bonuses -- which totaled $9.6 million -- in the spring, with
another quarter disbursed on July 15 and the rest on Sept. 15. The last two
payments would depend on whether the company made progress in revamping its
business and paying back bailout money to taxpayers.
The exact range of the payments due this month to AIG executives was unclear
in company disclosure filings.
AIG's proxy statement filed last month explains why AIG initially instituted
the retention payments. The company stated that after the federal bailout began
in September, "we needed to confront the fact that many of our employees,
perhaps the majority, knew that their long-term future with us was limited, and
our competitors knew that our key producers could perhaps be lured away. . . .
Allowing departures to erode the strength of our businesses would have damaged
our ability to repay taxpayers for their assistance."
The Treasury declined to comment specifically on the bonuses due this month.
In a statement, a department spokesman said, "Companies will need to
convince Mr. Feinberg that they have struck the right balance to discourage
excessive risk taking and reward performance for their top executives. . . . We
are not going to provide a running commentary on that process, but it's clear
that Mr. Feinberg has broad authority to make sure that compensation at those
firms strikes an appropriate balance."
Feinberg did not respond to an e-mail seeking comment.
The recent discussions between the company and Feinberg illustrate how
politically sensitive the bonuses have become, both for AIG and for the Obama
administration. No development in the government's bailout of financial firms
has angered lawmakers and ordinary Americans more than the disclosure in
mid-March that the global insurer was paying more than $165 million in retention
bonuses. They were aimed at retaining 400 employees at AIG Financial Products,
the troubled unit whose complex derivative contracts nearly wrecked the global
insurance giant.
Ultimately, some of these employees vowed to return more than $50 million --
but not before the resulting firestorm threatened to undermine the government's
effort to rescue the financial system. Lawmakers, including key allies of the
administration, sponsored bills that would have levied harsh taxes on AIG and
other bailout recipients offering bonuses to their executives.
Afraid of such congressional action, firms rushed to pay back federal aid,
while others shied away from cooperating with the government in some of its
bailout programs. Some initiatives had to be scaled down as a result.
The issue of bonuses, which had earlier been viewed by officials as minor
relative to the larger problems in the financial system, began to consume the
attention of top officials within the Treasury and Federal Reserve. Geithner
attended long meetings to review payments, even those for low-ranking AIG
executives.
Separately this week, a Citigroup analyst warned that AIG might be worthless
to shareholders if or when it ever pays back the billions it owes the U.S.
government.
"Our valuation includes a 70 percent chance that the equity at AIG is
zero," Joshua Shanker of Citigroup wrote in a note to investors. He cites
the continuing risks posed by the company's exotic derivative contracts, called
credit-default swaps, and its sale of assets at low prices. AIG's stock
plummeted by more than 25 percent yesterday.
|
|
Let's bring corporate excess to heel
By Dian Palmer
How much more pay should a CEO at a company get than the employees? Ten
times more? A hundred? In America today, average CEO pay is 344 times higher than average worker
pay. At Wal-Mart, CEO Lee Scott took in more than $30 million in total
compensation last year - about $15,000 an hour for the CEO compared with
about $10 an hour for the average Wal-Mart employee.
This is not good for our country. Not when success isn't shared and the
result is an economy that saps strength and prosperity from the workers -
the consumers - who are the lifeblood of economic growth and vibrancy.
People are working harder: Productivity is up nearly 20% from 2000 to
2006. Yet last year, real median household income was $1,175 less than it
was in 2000, and the average family spent more than $4,600 more for basic
expenses like gas, the mortgage, food, health care, appliances and phone
service. So now the average household carries thousands in credit card debt,
and in the past year, nearly 1 million people lost their homes to
foreclosure.
This isn't the promise of America - and it's why President Barack Obama
supports an important nongovernmental solution called the Employee Free
Choice Act to make sure that workers, not just CEOs, can have the chance for
a voice at their companies.
This measure ensures that workers can have the freedom to decide to join
together in a union and work together with their companies for fair wages,
benefits, retirement security and quality services and products for clients
and consumers.
In the 110th Congress, the measure was supported by majorities in both
the House and Senate, but it's no surprise that some corporations, corporate
law firms and big-business lobbyists oppose employee free choice. After all,
if you're paying yourself 344 times more than your employees (or a lot more
in the case of Wal-Mart), it's not hard to understand why letting your
workers decide whether to have input isn't a top priority. Workers in unions
earn 30% higher wages on average and are 59% more likely to have
employer-provided health coverage.
Instead of admitting that they simply don't want working people to gain
real input at a company, CEOs are spreading "sky-is-falling"
claims about this legislation. But smart policy decisions should be informed
by facts, not rhetoric or hyperbole.
A study of union-organizing drives by MIT professors found that between
1999 and 2004, only 20% of 22,000 petitions filed by workers requesting a
federally supervised election resulted in a collective bargaining agreement
with employers and the formation of a union. It's no surprise that CEOs are
supporting a system that is so skewed in their favor rather than support a
process that lets workers decide whether a traditional election or choosing
to sign up a majority of their co-workers on membership cards is a more fair
and free way to choose a union at their workplace.
When we look at the facts about what happens when workers have a chance
to choose to form a union at their companies, we see good things for our
economy and our communities - not a falling sky.
The Employee Free Choice Act just makes sure workers can have a fair
process to form their union at the many corporations that use threats and
intimidation against employees to deny it. It's a key solution to building
long-term success for our economy so that it works for everyone - not just
those at the top.
Dian Palmer is a registered nurse and president of SEIU Healthcare
District 1199 Wisconsin, a union representing nearly 5,000 health care
workers.
|
Why the Mortgage Credit Crisis Matters
As taken from AFL-CIO web on CEO-Paywatch
The U.S. mortgage market
is the financial market most closely linked to the lives of American
working families. For many Americans, their home is their most valuable
asset and an important source of financial security for their retirement.
Yet for a growing number of working families, the American Dream of
homeownership has become a nightmare.
American workers are
being hit by a double-whammy as they lose not only their homes, but also
their retirement savings, as pension funds bear the brunt of overwhelming
losses faced by financial institutions. The International Monetary Fund
estimates that the financial turmoil triggered by the collapse of the
mortgage market could total nearly $1 trillion.
The mortgage crisis can
be blamed on the combination of artificially low interest rates and a lack
of regulation of the mortgage industry. For years, policymakers aimed to
keep interest rates artificially low to prop up the economy through
consumer borrowing instead of crafting economic policies that would lead
to higher wages. As a result, consumer spending now accounts for nearly 70
percent of the U.S. economy, up from slightly more than 60 percent in the
early 1980s.
Because of stagnant wages
and the resulting increase in income inequality, the share of the
nation’s income flowing to the top 1 percent rose to 22.9 in 2006 from 16.9
percent in 2002, a level not seen since 1928, at the peak of the stock
market bubble. Corporate
chief executives are among those at the very top. CEOs of large U.S.
companies averaged $10.8 million in total compensation in 2006, more than
364 times the pay of the average U.S. worker, according to the latest
survey by the United for a Fair Economy.
So long as the Federal
Reserve Board complied with keeping interest rates low, the American Dream
of owning a house seemed within reach of millions of low-income workers.
Stagnant wages and rising housing prices left homeowners with no choice
but to treat their houses as piggy banks, using the loans to pay for
household bills.
The housing bubble was
stoked by the lack of regulation of the mortgage industry, which enabled
brokers and lenders to exploit the weakest sections of
society—low-income workers, minorities and immigrants—with misleading
mortgages they couldn’t afford or with low down payments and
artificially low, teaser interest rates on their mortgages that reset
after a brief period of time.
 The
result was millions of subprime mortgages, those with low or no down
payments, and adjustable interest rates, built around the fairy tale that
housing prices would keep rising. As a result, these subprime mortgages
accounted for 20 percent of all new mortgages in 2006, up from 5 percent
in 2001.
With real estate prices
dropping, foreclosures are on the rise and many homeowners find that they
owe more on their mortgage than what their home is worth. In many states,
falling real estate prices also have affected renters who face eviction if
their landlords can’t pay their mortgages. For the first time, Federal
Reserve Board Chairman Ben Bernanke acknowledged that the U.S. economy
could be slipping into a recession.
The mortgage crisis also
is hurting the retirement savings of working families. In the first three
months of 2008, the benchmark Standard & Poor's (S&P's) 500 index
fell 10 percent as events unfolded. Mutual funds, money market funds and
pension funds face major losses from securitized mortgage bonds (many of
which contain a “subprime” component) that were sold to them with AAA
ratings from credit rating agencies as safe investments.
What Caused the
Mortgage Credit Crisis
Since 2000, mortgage
lenders have made more than $2.5 trillion in subprime loans. A large
proportion of these mortgages was sold to those with credit scores high
enough to qualify for conventional loans with far better terms. Instead,
individuals often were pushed into subprime loans by unlicensed mortgage
brokers motivated by the more favorable commissions and using deceptive
tactics.
The absence of effective
regulation of the mortgage market emboldened lenders to flood the market
with exotic mortgages that were misleading and exploitative. For example,
many home buyers were sold loans with artificially low interest, or
“teaser,” rates or interest-only mortgages that then reset to
significantly higher interest rates creating unaffordable payments. Others
were given payment options that included paying less than the interest
charged each month so that the loan balance actually increased over time.
Wall Street played an
important role in exacerbating the real estate bubble. Investment banks
repackaged their risky mortgages into securities known as collateralized
debt obligations that, because they also contained some element of
conventional mortgages, were characterized as safe investments by the
various rating agencies. But this financial wizardry often resulted in a
concentration of risk for speculation by hedge funds that bet on
ever-increasing real estate prices.
Investment banks, themselves, also got hurt because they bet an increasing
share of their own capital on mortgage-related investments.
Meanwhile, government
regulators, including the Federal Reserve and the U.S. Securities and
Exchange Commission (SEC), failed to adequately police these practices.
More than a dozen companies are now under investigation by the FBI
for practices that were fueled by the crisis, such as accounting fraud and
insider-trading.
The Bush
administration’s response to the crisis has been to recommend
overhauling the financial system not by beefing up regulation, but by
proposing a plan favored by the U.S. Chamber of Commerce that would
further .
How Runaway CEO
Pay Helped Fuel the Crisis
Over the past several
years, CEO pay has exploded at many of the companies responsible for
creating the subprime mortgage crisis. Too often, their compensation
programs encouraged corporate executives to maximize short-term financial
gains at the expense of long-term sustainability. In effect, boards of
directors rewarded their CEOs for generating financial results that were
often based on taking on irresponsible levels of subprime mortgage risk.
For example, large stock
option grants encouraged excessive risk-taking by CEOs to maximize their
potential gains through short-term stock price increases. Stock options
promise executives all the benefit of share price increases with none of
the downside risk. In the worst case scenario, the stock options will
expire worthless. In effect, stock options allow executives to gamble with
their shareholders’ money at no risk to themselves.
Too many CEOs have their
incentive compensation tied to performance measures that rewarded
financial results without regard to the risk involved in generating those
results. At some companies, focusing on revenue growth encouraged CEOs to
expand into the subprime lending business at the peak of the real estate
market. Return on equity, another popular performance measure for CEO pay,
encouraged executives to use increased leverage.
The pay packages of CEOs
at mortgage lenders and investment banks also were sheltered from the
inevitable decline in the real estate market because many of them were not
required to hold their equity awards for the long term. This allowed CEOs
to cash out before the bubble collapsed. Large golden parachutes further
insulated CEOs from the financial risk of catastrophic results.
|
Several CEOs departed in
2006 who received generous exit packages despite their poor performance,
costing companies and their investors millions of dollars. Pfizer’s
Henry McKinnell and Home Depot’s Robert Nardelli received exit packages
of more than $200 million each, despite poor stock performance during
their tenures.
These large exit packages
are due primarily to executive employment agreements.
Employment agreements are legally binding contracts that spell out
the terms under which executives are hired.
The problem is that they may guarantee a specified level of
compensation regardless of performance, as in the case of Robert Nardelli.
| Average Worker vs. Average CEO Severance Pay |
| |
|
| Average CEO ousted in 2006 |
170 |
| Average CEO without a contract |
18 |
| Average Worker |
2 |
Source: “Has the Exit Sign Ever Looked So Good,” The
New York Times, 4/8/2007.
Employment agreements
also spell out what executives will receive under different termination
scenarios. Such employment
agreements often include what has become known as a “golden handshake”
in which the company promises payment upon retirement or termination. Executives
also may receive “golden parachute” payments if the company undergoes
a change in ownership or if the executive is terminated because of a
change in control.
Supporters of such
severance agreements argue that they provide managers with the incentive
to maximize shareholder wealth without worrying about losing their job as
a result of a change in control. However,
the amounts guaranteed by golden parachutes and golden handshakes may add
up to millions of dollars. When
these packages become excessive, they may motivate executives to engage in
a merger, even though it may not be in the interests of shareholders. Golden
parachutes also may result in lower firm valuation, according to Harvard
professor Lucian Bebchuk.
Typically, exit packages
involve a cash severance of two or three times salary plus bonus. These
agreements also often call for accelerated vesting of stock awards, option
awards and pension benefits, quickly boosting the size of the total
payment. Sometimes the termination
terms for stock awards, option awards and pension benefits are not
included in the employment agreement, but in the individual plans for each
of those benefits.
 Moreover,
if the golden parachute payment received upon a change of control exceeds
2.99 times the executive’s average annual salary and bonus for the five
preceding years, then the amount exceeding the average annual salary and
bonus cannot be deducted by the company, meaning that it must pay taxes on
it.
The executive also must
pay a 20 percent excise tax for golden parachutes on everything over
his or her average base salary and bonus for the preceding five years,
though many companies offer to “gross up” or pay that tax as well,
costing shareholders even more.
Because executive
employment agreements are legally binding, companies must pay the
executives according to the terms specified under them. In
the case of KB Home, former CEO Bruce Karatz could collect as much as $175
million, despite his involvement in backdating stock options at the
company. That’s because the
company accepted his retirement, and he was not fired for cause.
Karatz’s compensation
is frozen until an agreement is reached between him and KB Home on how
much he actually will receive. Investors
have urged the company not to pay Karatz. However,
because of the legally binding employment agreement, KB Home has a
weakened case if it decides not to pay him. It
is all the more important for shareholders to be cognizant of the terms of
exit packages when they are drawn up, not when the executive receives the
payment.
In previous years, it was
difficult to ascertain the value of executive severance packages, until an
executive actually left a company. The
new U.S. Securities and Exchange Commission (SEC) executive compensation
disclosure rules now require companies to disclose the terms of written or
unwritten arrangements that provide payments in case of the resignation,
retirement or termination of the “named executive officers” or the
five highest-paid executives of a company. The
SEC rules also require companies to detail the specific circumstances that
would trigger payment and the estimated payment amounts for each
situation.
Though the new SEC
disclosure rule will show whether an executive has an excessive severance
package, it does not provide investors with a way to limit them. Congress
is considering legislation that will require public companies to hold a
non-binding vote on executive pay plans, including an advisory vote if a
company awards a new golden parachute package during a merger, acquisition
or proposed sale.
This advisory vote will
give shareholders a way to voice their support or opposition to a
company’s golden parachute. Knowing they will be subject to some
collective shareholder action will encourage boards of directors to
address shareholder concerns before approving a questionable golden
parachute.
|
| |
| |
|
