Spare a thought this Labor Day holiday, when you fire up the barbecue for the last weekend of the summer and raise a beer for the workers in this country, for some of the notable men who have lost their jobs over the past 20 years. I'm thinking of Richard Fuld, Dennis Kozlowski and Eckhard Pfeiffer.
They aren't union leaders who were fired for organizing for better wages or men who lost their jobs to sweatshop labor in Bangladesh. They aren't even the engineers who have been put out to rust by robot-run assembly lines. They don't really number among the almost 20 million who are estimated to be unemployed or underemployed.
No, these three names popped up in a review of the "Bailed Out, Booted and Busted" – a study released Wednesday by the Institute of Policy Studies in Washington DC of the 241 people who have ranked as the highest paid CEOs in the US in the past two decades.
An astonishing 38% of these titans of finance and industry have either been kicked out of their jobs, put in jail or had to have their companies be rescued from bankruptcy. Fuld, Kozlowski and Pfeiffer are three that top the list.
"Outrageous pay packets seem to encourage outrageous behavior," says Sarah Anderson, one of the authors of the new report.
Fuld raked in $466.3m in salary and stocks in seven years as CEO of Lehman Brothers, the Wall Street investment bank, before the company collapsed in September 2008, precipitating the last financial crisis. He's just one of 112 such CEOs whose companies were given a total of $258bn in taxpayer bailouts.
Kozlowski ran Tyco, a conglomerate which bought companies that did everything from laying undersea fiber-optic cables to making fire-fighting foam, from 1992 to 2002. He paid himself $170m in 1999 and $125m in 2000. Found guilty of systematically looting the company in 2005, he was sent to jail, and is now serving time at a minimum-security facility near Central Park in Manhattan.
He joins 18 other top paid CEOs in the past 20 years that have led companies that were "busted" or ordered to pay more than $100m each for fraud-related fines and settlements.
Then there's Pfeiffer, who ran Compaq computer from 1992 to 1999, and was fired when his company lost business to rivals Dell and Gateway. Like 27 other CEOs on the list, he was smart enough to have given himself a generous "golden parachute" contract, allowing him to walk away with $416m in compensation on his final payday.
It's easy to argue that there are a couple of bad apples in every cart, but think of it this way: if two out of every five pieces of fruit in a store were rotten, it would behoove the manager to tell stockers that if they didn't cull the bad ones, customers would take their business elsewhere.
In other words: shouldn't we be asking companies' boards of directors to tighten the rules on CEOs to make sure they don't fail at such an astounding rate? And what better way than tying it to their pay packets? And if the boards won't do this, could government step in, if only to save the companies from their own CEOs abject levels of failure?
One of the simplest reforms that shareholder activists have lobbied for is a report by companies to shareholders comparing CEO compensation to that of their worst paid worker. This has been mandated by the US Congress under the 2010 Dodd-Frank legislation but companies have fought tooth and nail against this being implemented.
Corporate America has been backed up by business school pundits who say that CEO compensation is not a matter that government should regulate. I asked VG Narayan, who runs the Board of Directors Compensation Committee Executive Education Program of the Harvard Business School what he thought of the IPS findings. "It's terrible when poor performance gets rewarded with a high level of compensation," he said via email.
But he firmly believes that corporate boards and executives are best placed to fix this. "Governmental and shareholder second-guessing on pay would create an environment of fear in which no board would dare try an approach that's different from the herd's or that is tailored to the company's particular strategy," Narayan wrote in 2009. "For instance, if the maximum ratio of CEO pay to worker pay were mandated, companies might respond by outsourcing the work of the lowest paid workers rather than curbing CEO pay."
David Larcker, the director of the Corporate Governance Research Program at the Stanford Graduate School of Business, also says that governments should be cautious about scaring away these CEOs.
"Executive compensation may be the lightning rod for shareholders in the wake of the financial crisis, but the truth about how pay should be structured is clouded by a lot of popular myths," Larcker wrote in 2011. "Boards have to consider that how much they pay will have an impact on the types of people who want to take the CEO position. You don't want to drive talented CEOs out of public companies so that they can avoid scrutiny over how much they are paid."
Well, these business schools have had decades to preach about better practices. Workers jobs are being outsourced anyway, and the CEOs are still getting away with outrageous pay packages. And the IPS study shows that these CEOs aren't that talented – since they are failing at an incredibly high rate.
As Anderson says:
Boards of directors are not going to change this. They are mostly made up of other CEOs who says if you scratch my back, I'll scratch yours. Unless regulators, lawmakers or shareholders do something to stop this madness, 20 years from now today's corporate compensation will seem as modest as the pay levels of 1993.
The IPS report suggests several additional legal reforms in addition to encouraging narrower CEO-worker pay gaps such as bolstering accountability to shareholders and extending accountability to broader stakeholder groups.
Plus governments can eliminate taxpayer subsidies for excessive executive pay and encourage reasonable limits on total compensation by not giving out contracts to companies who pay excessive CEO salaries (effectively subsidized by the taxpayer) and rewarding those who pay their workers well.
Maybe fewer businesses would fail and more workers would be able to celebrate Labor Day if CEO's had a government-led incentive to do a better job in the first place. Hopefully, the US Congress will get on this when they return from their summer vacations and barbecues.
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