I am tired of hearing about no restrictions on any bailout of any financial firm, yet whining about workers with negotiated contracts of the auto firms. Knowledge workers get laid off left and right in financial firms and executives getting paid bonuses for almost going bankrupt.
In 1950, the average pay of a CEO of a Fortune 500 firm was less than 30 times that of the average worker. In 2007 it is over 350 times that of the average worker.
So here is the deal: if workers take the hit for the bailout and bad economy (as in layoffs, cutting back to four day work weeks, not matching 401(k) contributions and not taking vacation pay), then senior executives go back to 30 times their average workers pay in their company.
It is about time the sacrifices evened out. And executives truly shared in the pain. Perhaps it will sharpen their decision-making capability.
Scot
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Actually, executives are taking a hit when workers take a hit. Their pay is largely based on how profitable a company is, and the reason workers are suffering is because lots of corporations aren’t as profitable as they used to be in this current economic state.
If you asked me, there should be no bailout at all. Let the corporations that deserve to fail actually fail already, which would definitely also bring the executives down, because they would be out of a job, just like the other workers. The only way to let the economy fix itself is to let it fall apart when it has to. It will always adjust in the long run without government intervention.
Actually, executives are taking a hit when workers take a hit. Their pay is largely based on how profitable a company is, and the reason workers are suffering is because lots of corporations aren’t as profitable as they used to be in this current economic state.
If you asked me, there should be no bailout at all. Let the corporations that deserve to fail actually fail already, which would definitely also bring the executives down, because they would be out of a job, just like the other workers. The only way to let the economy fix itself is to let it fall apart when it has to. It will always adjust in the long run without government intervention.
@Claire – In theory, this would be accurate. But, in practice, executives of public corporations rarely take anywhere near the same hit as their workers do when sacrifices are made.
This is because senior executives work under contracts — and the separation pay is already baked into the contract. That’s why a CEO can get fired for poor performance, but still walk away with millions in compensation (and there are plenty of examples of that situation).
In addition, their rules for receiving compensation are measured differently than knowledge workers. For example, Washington Mutual EXCLUDED the results of the disastrous housing division for their executive pay — but kept the results for the knowledge workers, reducing their salary increase and bonus amount while laying thousands of people off. This is not the same sacrifice.
And whether you agree with the bailout or not, the executives don’t even have the ethics to refuse the bonus amounts. As noted from the AP:
“The 116 banks that so far have received taxpayer dollars to boost them through the economic crisis gave their top tier of executives nearly $1.6 billion in salaries, bonuses and other benefits in 2007, an Associated Press analysis found.”
If the performance was so poor that the banks had to go get bailout money, why would the boards be approving $1.6 billion in salary and bonus money for the performance? In short, there is no penalty for poor performance for executives. This, in my opinion, affects their decision-making capability — helping to cause the “lower profits” because they can no longer measure risk correctly.
The only time the executives might lose their jobs and not get the money is if they truly go bankrupt. Yet, most companies are bought out before they go bankrupt. To use Washington Mutual as an example (they were headquartered here in Seattle-land, so I am more familiar with them), they were taken over by JPMorgan Chase at the direction of the FDIC for pennies on the dollar.
Their new CEO, on the job for less than three months, walked away from that buyout with $8 million. Hardly a sacrifice for three months work.
Combine this with the disparity in income — 350 times the average worker’s salary compared to 30 times in 1950 — and you have an “executive class” that cares much more about themselves then the company they keep.
@Claire – In theory, this would be accurate. But, in practice, executives of public corporations rarely take anywhere near the same hit as their workers do when sacrifices are made.
This is because senior executives work under contracts — and the separation pay is already baked into the contract. That’s why a CEO can get fired for poor performance, but still walk away with millions in compensation (and there are plenty of examples of that situation).
In addition, their rules for receiving compensation are measured differently than knowledge workers. For example, Washington Mutual EXCLUDED the results of the disastrous housing division for their executive pay — but kept the results for the knowledge workers, reducing their salary increase and bonus amount while laying thousands of people off. This is not the same sacrifice.
And whether you agree with the bailout or not, the executives don’t even have the ethics to refuse the bonus amounts. As noted from the AP:
“The 116 banks that so far have received taxpayer dollars to boost them through the economic crisis gave their top tier of executives nearly $1.6 billion in salaries, bonuses and other benefits in 2007, an Associated Press analysis found.”
If the performance was so poor that the banks had to go get bailout money, why would the boards be approving $1.6 billion in salary and bonus money for the performance? In short, there is no penalty for poor performance for executives. This, in my opinion, affects their decision-making capability — helping to cause the “lower profits” because they can no longer measure risk correctly.
The only time the executives might lose their jobs and not get the money is if they truly go bankrupt. Yet, most companies are bought out before they go bankrupt. To use Washington Mutual as an example (they were headquartered here in Seattle-land, so I am more familiar with them), they were taken over by JPMorgan Chase at the direction of the FDIC for pennies on the dollar.
Their new CEO, on the job for less than three months, walked away from that buyout with $8 million. Hardly a sacrifice for three months work.
Combine this with the disparity in income — 350 times the average worker’s salary compared to 30 times in 1950 — and you have an “executive class” that cares much more about themselves then the company they keep.
Scot – agree with you here. Especially with any company taking taxpayer dollars. The mere fact that any company taking money from the government and then “giving” to their employees [and anyone on the payroll is an employee, including C-Level] calling it a bonus, should be required to give the money back and go into bankruptcy. We have witnessed entitlement at a whole new level within the last few months – amazing to me.
In the immortal words of James Allen: “Circumstances do not make the man, they merely reveal him for who he really was.” Truer words have not been spoken. I hope that as “we” begin to spend our hard earned dollars in the future, there is more thought into “who” is actually getting those dollars.
- AM
Scot – agree with you here. Especially with any company taking taxpayer dollars. The mere fact that any company taking money from the government and then “giving” to their employees [and anyone on the payroll is an employee, including C-Level] calling it a bonus, should be required to give the money back and go into bankruptcy. We have witnessed entitlement at a whole new level within the last few months – amazing to me.
In the immortal words of James Allen: “Circumstances do not make the man, they merely reveal him for who he really was.” Truer words have not been spoken. I hope that as “we” begin to spend our hard earned dollars in the future, there is more thought into “who” is actually getting those dollars.
- AM
@Arnie McKinnis – I was pretty ambivalent about the bailout, mostly because it was “shock and awe” all over again and you can’t fool me twice. One could certainly argue against bailing anyone out, though those that simply want the failure of the company because that is the “market” fail to learn the consequences of the failure of the rest of us… Certainly, we can disagree with how the bailing is being done and I’m in that camp.
But since the taxpayer is doing the bailing, it says a lot about executives and what they think they deserve when they still try and take these (huge) bonuses at the expense of the taxpayer and their knowledge workers. Except for the public outcry, the CEO of Merrill Lynch was still looking for a $10 million bonus — even after failing and being sold to Bank of America.
The “entitlement attitude” is a problem. How many knowledge workers feel “entitled” in this economy?
If risk and reward are to be put back into the “C-level” equation, it can’t just be reward, no matter the risk. That failure of balancing risk and reward to just “reward” causes thousands of layoffs of knowledge workers.
Anyone have any ideas on changing the executive culture? Get rid of executive employment contracts?
@Arnie McKinnis – I was pretty ambivalent about the bailout, mostly because it was “shock and awe” all over again and you can’t fool me twice. One could certainly argue against bailing anyone out, though those that simply want the failure of the company because that is the “market” fail to learn the consequences of the failure of the rest of us… Certainly, we can disagree with how the bailing is being done and I’m in that camp.
But since the taxpayer is doing the bailing, it says a lot about executives and what they think they deserve when they still try and take these (huge) bonuses at the expense of the taxpayer and their knowledge workers. Except for the public outcry, the CEO of Merrill Lynch was still looking for a $10 million bonus — even after failing and being sold to Bank of America.
The “entitlement attitude” is a problem. How many knowledge workers feel “entitled” in this economy?
If risk and reward are to be put back into the “C-level” equation, it can’t just be reward, no matter the risk. That failure of balancing risk and reward to just “reward” causes thousands of layoffs of knowledge workers.
Anyone have any ideas on changing the executive culture? Get rid of executive employment contracts?
Great insights, Scot. I would welcome your readers to compare Dwight Eisenhower to Robert Nardelli (former CEO of Home Depot and the current CEO of Chrysler) to see how far we’ve fallen. Specifically, the leadership approach Eisenhower took before storming the beaches of Normandy.
This is not my attempt to paint all senior leaders with a broad brushstroke, but to pound the table to say something’s broken.
Great insights, Scot. I would welcome your readers to compare Dwight Eisenhower to Robert Nardelli (former CEO of Home Depot and the current CEO of Chrysler) to see how far we’ve fallen. Specifically, the leadership approach Eisenhower took before storming the beaches of Normandy.
This is not my attempt to paint all senior leaders with a broad brushstroke, but to pound the table to say something’s broken.
@Eric Pennington – Good comparison, Eric. And correct, in that not all senior leaders are like this. Greg Brown, the CEO of Motorola, asked workers to take a variety of sacrifices and he also dropped his salary by 25% and declined any bonus from the Board of Directors.
That, however, is the exception and that is why pounding the table to say the sacrifices are not comparable to knowledge workers ring true.
@Eric Pennington – Good comparison, Eric. And correct, in that not all senior leaders are like this. Greg Brown, the CEO of Motorola, asked workers to take a variety of sacrifices and he also dropped his salary by 25% and declined any bonus from the Board of Directors.
That, however, is the exception and that is why pounding the table to say the sacrifices are not comparable to knowledge workers ring true.