Obama Plan Can’t End CEO Greed
In February, President Obama officially launched his war on CEO greed. The lynchpin of his program is a cap of $500,000 on executive pay. Pardon me if I don’t celebrate this so-called reform. First of all, the cap only applies to CEOs of companies that receive taxpayer bailout money. Second, those companies affected must have received what Obama calls “exceptional financial recovery assistance.” That’s Barackspeak for “anything over $20 billion dollars.” Third, the new caps don’t apply to the companies that have already received federal assistance. Fourth, if the pay cap were akin to cash in a bank vault, then the companies it is meant to keep out already have access to the combination.
Graef Crystal, a former executive compensation consultant, scoffed at the pay limits, telling the Los Angeles Times: “You’re pitting a group of government bureaucrats against compensation consultants and lawyers who are paid lots of money… to find ways around things like this.” If Mr. Obama had only done his homework, he would have known that former President Bill Clinton fell victim to these loophole lawyers when he attempted (but failed) to rein in greedy executives back in 1993. Clinton’s plan involved legislation that limited a company’s ability to deduct more than $1 million in CEO salary from their corporate taxes. Instead, those companies just responded by lowering base salaries and augmenting them with outrageous stock options. They also created other sources of CEO income. One example was when corporations would pay their executives’ taxes, a practice known as “grossing up.” Overall, the corporate reaction to Clinton’s plan ushered in a new era of greed which gave rise to today’s levels of pay disparity between executives and the working class. In 2008, the Institute for Policy Studies and United for a Fair Economy, released a report showing that CEOs of large corporations make on average 364 times the salary of their employees. To make matters worse, many of the top dogs making those obscene salaries weren’t always competent, and their greed helped to trigger our current economic meltdown. Men like James Cayne of Bear Stearns who earned $34 million per year. His company’s demise cost taxpayers $2.7 billion dollars. Richard Fuld of Lehman Brothers made $27 millionannually as he oversaw the collapse of a once solid company. CharlesPrince, CEO of Citigroup, paid himself $25 million while managing todrive Citi’s stock prices into the ground. And Angelo Mozilo, head ofCountrywide earned $43 million during a year in which his company wasthe nation’s leading issuer of toxic subprime mortgages. Nodoubt these snakes have garnered the majority of our collective ire,but there were other executives who also contributed to our deeprecession, and who are less well known to the general public. Example,Richard Noll of Hanesbrands who earned over $8 million in a year inwhich he laid off over 14,000 American workers and closed over 30plants here at home. To add insult to injury, he shifted those jobs andplants to third world countries so that he could boost his earnings onthe backs of slave wage laborers. Noll’s greed helped to make NorthCarolina one of the fastest growing states in unemployment levels, aswell as the state with the highest growth rate of uninsured people. LastFall, Charlie Crystal, founder of the Pennsylvania software companyMission Research, proposed that corporations cap CEO pay at seven timesthe company’s median salary. Using Crystal’s formula, if the averageworker is making $40,000, then the top executives could never make morethan $280,000. Obama should embrace Crystal’s proposal, and push theprivate sector to adopt it. But there should also be a law against payraises for CEOs in publicly traded companies that are losing money, orwhere a significant number of layoffs have occurred. Such a law wouldlighten the wallet of nearly every CEO in the country, even those whoare not public enemies. Example, Susan Ivey of Reynolds American. In ayear in which she laid off 570 people, Ivey has just received a$900,000 pay raise, bringing her total salary to $8.8 million dollarsper year. Ivey is a gracious woman who gives generously of her ownmoney and time to aid numerous community organizations. Butaccepting a pay raise of nearly $1 million is an ill-timed slap in theface to the very people she has helped in her community service work.Right now Americans are hurting, and they are justifiably angered bythe kind of corporate greed that has taken our jobs, our homes, and ourhealth insurance. We are like angry villagers from one of those oldFrankenstein movies who form a mob to hunt down and destroy theMonster.
Unfortunately, Obama’s toothless plan fordealing with greedy CEOs will do nothing to calm our outrage, or eraseour pain. The monsters are still at large.
JimLongworth is the host of “Triad Today,” airing on Fridays at 6:30 a.m.on ABC 45 (cable channel 7) and Sundays at 10 p.m. on WMYV (cablechannel 15).