WIUM Tristates Public Radio

Bailed Out, Booted, or Busted

Sep 18, 2013

Most people know that most corporate CEOs are paid a lot -- the ratio of CEO pay to average-worker pay is 273 to 1, compared to 20 to 1 in 1965, reported the Washington Post. But what does all that money buy?

Crime or incompetence, it turns out.

About 40 percent of corporate America’s highest-paid executives over the last 20 years performed poorly, according to a new report from the Institute for Policy Studies, which conducted a thorough “performance review” of CEOs who ranked among America’s 25 highest-paid CEOs in one or more of the past two decades. They found many to have been “bailed out, booted or busted.”

Bill Knight

“The Bailed Out” led firms that folded or got taxpayer bailouts after the 2008 financial crash – 22 percent of the nation's highest-paid CEOs. Richard Fuld enjoyed one of corporate America’s largest 25 paychecks for eight years at Lehman Brothers, for example – until his firm went belly up in 2008. “The Booted” are another 8 percent of the best-rewarded CEOs, those who were fired – not counting those on the bailed-out list. Despite lousy performances, such fired CEOs left with golden parachutes valued at $48 million on average. “The Busted” are yet another 8 percent of America's highest-paid chief executives, leading companies that had to shell out payments that averaged more than $100 million for fraud-related fines or settlements.

The Institute for Policy Studies (IPS) issues such reports annually, and this one – “Executive Excess 2013: Bailed Out, Booted and Busted, a 20-Year Review of America’s Top-Paid CEOs” – examines the "performance" of the 241 corporate bosses who ranked among America’s 25 highest-paid CEOs in the past two decades. The authors write, “All this compensation, corporate spokespeople have continually reminded us, reflects the exceptional ‘value’ these amply rewarded executives have added to their enterprises. In reality, America’s most highly paid executives over the past two decades have added remarkably little ‘value’ to anything except their own personal portfolios.”

The report says, “Our analysis reveals widespread poor performance within America’s elite CEO circles. Chief executives performing poorly have consistently populated the ranks of our nation’s top-paid CEOs.”

The Top 5 bailed-out corporations with CEOs appearing on the top 25 highest-paid lists since 1993 are: AIG (which received $69 billion in bailouts), Citigroup ($50 billion), Bank of America ($45 billion), JPMorgan Chase ($25 billion), and Wells Fargo (also $25 billion). The Top 5 executives forced out of their jobs (with lavish “golden parachute” separation pay) are Compaq Computer’s Eckhard Pfeiffer, Pfizer’s Henry McKinnell, Merrill Lynch’s E. Stanley O’Neal, KB Home’s Bruce Karatz and Enron’s Kenneth Lay. The Top 5 highly paid executives tied to fraud charges at companies that paid substantial sums in fines and settlements are Oracle’s Lawrence Ellison, McKesson’s John Hammergren, Bristol-Myers Squibb’s Charles Heimbold, and (tied) America Online’s Stephen Case, Schering-Plough’s Richard Jay Kogan and CIGNA’s Wilson Taylor.

Even if a corporation is not receiving government funds directly, taxpayers subsidize highly paid CEOs through a loophole in the federal tax code. Under current rules, corporations can deduct unlimited amounts off their taxes for the expense of executive stock options and other so-called performance-based pay. So the more corporations pay CEOs, the less they pay in taxes.

IPS’ researchers note, “This loophole creates a perverse incentive to compensate executives excessively because ordinary taxpayers wind up paying the bill.”

IPS has ideas for reform that they describe as “creative and practical proposals”:

* Limiting the deductibility of executive compensation: At a time when Congress is debating sharp cuts to essential public services, corporations are able to avoid paying their fair share of taxes by deducting unlimited amounts from their IRS bill for the cost of executive compensation.

*CEO-worker pay ratio disclosure: Three years after President Obama signed the Dodd-Frank legislation, the Securities and Exchange Commission still hasn’t implemented this common-sense transparency measure.

*Pay restrictions on big banks, which are already regulated (if barely these days): Within nine months of the enactment of the 2010 Dodd-Frank law, regulators were supposed to have issued guidelines that prohibit large financial institutions from granting incentive-based compensation that “encourages inappropriate risks.” Regulators are still dragging their feet on this modest reform.  

Talk about crime and incompetence.  

Bill Knight’s newspaper columns are archived at billknightcolumn.blogspot.com

The opinions expressed are not necessarily those of Tri States Public Radio or Western Illinois University.