I’d like a bonus for being a poor CEO
Published January 30th, 2009There’s been a lot of anger coming from a lot of America (it seems) towards CEO’s getting huge bonuses even while their companies teeter on destruction and ask for billions in aid from the US Government. And I think that it’s absolutely warranted. To reward these executives for running their companies into the ground, with bailout money, is pathetic. It just goes to show the unwarranted greed that is pervasive in those companies. How can any of them with a straight face, after their company loses millions of dollars, accept a “bonus” - ostensibly for a “job well done?” Seriously?
But it’s also clear that these folks are completely out of touch with what most of America sees. Their PR departments must have been laid off. For example, see the Detroit Auto Exec debacle, when they all took private planes to DC to beg for money. Now, I’m not going to say that was wrong - that’s what company jets are for - BUT they should have been aware, or made aware, of how that would look. It’s like taking a limo up to the local food bank and begging for food while wearing a tux. Stupid. Same for these bailout companies who say they’re losing money and laying off jobs - then have their execs go on a corporate retreat to the Carribbean. Now I’m not saying that was necessarily bad - but it was horrible timing from a PR perspective. That’s “our” money, America is saying. We are giving it to you to help - not squander on luxury and greed. And that’s a fair thing to feel, I think.
But let’s make sure we know exactly who to be angry at. I don’t praise these CEO’s, I think what they have done with their bailout cash is - for the most part - rather offensive. However, I’m not going to go as far as Sen. Claire McCaskill (D-MO) and call for the CEO’s income to be capped at $400K (the President’s salary). Putting a salary cap - especially one that is relatively (RELATIVELY of course, I’d love to make $400K for running a company into the ground) low - is a mistake and ill-advised. We have to remember that we want CEO’s to strive for bonuses, to do the best they can, to make a company a success. We want them to aim for the stars. We would not want to take a job that is all about running a profitable company for minimum wage. Not that $400K is - but it’s still a cap and once you get there, where can you go? Why work harder? Why not leave for some other, more lucrative, position? We might end up with not the best candidates running our companies. It suppresses competition.
That doesn’t mean I don’t think the system is somewhat broken. The gap between CEO salaries and average salary in the company has grown wider and wider.
In 1970, CEO salary and bonus packages were typically about $700,000 - 25 times the average production worker salary; by 2000, CEO salaries had jumped to almost $2.2 million on average, 90 times the average salary of a worker, according to a 2004 study on CEO pay by Kevin J. Murphy and Jan Zabojnik. Toss in stock options and other benefits, and the salary of a CEO is nearly 500 times the average worker salary, the study says.
And in fact, limiting CEO salaries has been tried before - and there’s always loopholes. How did this happen though? Easy - Congress - the same crowd that is now angry at the bailout misuse - never put any restrictions on the bailout money in the first place. What did they expect? Did they even get a pinky swear that these guys would use it as Congress and the American public wished? No - they just handed over the greenbacks. And now we’re suffering the consequences - rampant misuse. Now, I’m not saying it’s been 100% misused, but I am saying that a significant portion has. Even President Bush said he didn’t want this money to go into CEO’s pockets - though he did nothing to put provisions in to stop it either. If someone gave you $1M and said “go use it to help your business out, but no restrictions or oversight on that” wouldn’t you give yourself a little bonus? I bet you would. So while we may condemn these executives for their greed, we should also be condeming Congress for their shortsightedness.
I’ve discussed this with a friend who knows economics far better than I do and I don’t always agree with his ideology, he does usually illuminate how some practical matters play out. And I agree that I don’t want C0ngress running these businesses. But I do think there should be more oversight, more transparency and - above all - more accountability. These companies should not be getting huge lump sums, they should be getting the money on a system that calls for multiple reviews and accounting of the monies. Congress should not be judging them so much on pure business decisions - but they should be saying, “Look, if you’re just going to give your CEO’s bonuses, fiddling away like Nero while Rome burns, we’re just not going to give you more money.” And that would be fair. And we’d all know why and what they’ve done.
But don’t cap salaries. Not at a number that simply doesn’t make sense for a multibillion dollar company. We want the best in those positions. It’s been corrupted by the greedy who reward themselves no matter what, true, but we still want to attract individuals who will strive for the top because the summit is so high - but also be of the character that if they do a bad job, or if the company is failing, the company comes first. Not their own bank accounts.
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