Under normal circumstances corporate boards set the compensation of their chief executive officers and stockholders have an opportunity to voice their opinions about the fairness of their actions. But these are not normal times, at least for the nation’s financial institutions, and a whole new set of rules seems to apply.
Having become increasingly angry over the astronomical, almost obscene amounts of money CEOs have been awarded for leading us into the worst economic disaster since the Great Depression, few Americans would approve of guaranteeing executives these bloated paychecks at the same time the taxpayers are being asked to save their companies. To continue to maintain otherwise as was originally proposed would have been political poison and doomed the bailout.
It is this simple: If your institution participates in the government relief effort, you as its president can expect to have to suffer financially for the privilege no matter what prior contract you signed. If you wish to risk the continued solvency of your company, as Treasury secretary Henry Paulson argued might happen, that is your business and that of those who have invested with you. How many would take that latter course? I dare say not many. Most of those who sign up in fact have no alternative and those that do can’t take the chance.
Congress is nothing if not a good barometer of public sentiment, which was overwhelmingly on the side of those who insisted executive salaries, bonuses and golden parachutes should be limited. Key Republicans, who normally would be on the other side of this issue, read the political tea leaves and joined Democratic leaders in demanding that salary caps be included in any emergency package. That included Sen. John McCain, the GOP presidential nominee. It is also why the White House accepted the limits.
If you are a CEO of one of these organizations you should feel lucky that pay restrictions are the only thing that happens. Most Americans want to put you in jail. And for some of you, that still may happen given the fact that both the Securities and Exchange Commission and the FBI have launched massive investigations into how all this came about. So never mind the moral implications of your actions and those of your boards — many of which are incestuously interlocking or handpicked by you — there may be legal consequences as well.
In the case of Fannie Mae and Freddie Mac, which the government effectively nationalized, some common sense seems to have prevailed with a decision that the two last chief executives would not get the enormously lucrative parachutes for in effect being fired. They will have to settle for much less. But hold on. That amounts to more money than most Americans will see in a lifetime — something close to $10 million.
As one whose daughter had invested heavily and wisely in Fannie Mae where she had worked for a number of years before leaving to raise a family, I can sympathize with the trauma caused these institutions’ hard working employees. Many have watched helplessly as their pension plans and nest eggs have disappeared as the once valuable stock suddenly became worthless. Lisa’s own loss amounted to $300,000 or more on stock she had counted on as a college fund for her children. Meanwhile, a series of Fannie Mae chief executives have lined their pockets with millions upon millions of dollars.
Don’t misunderstand. This is not a pitch in favor of limiting the compensation paid executives of well-run companies whose stock is publicly traded, as clearly over the top as some of that is. Nor is it an overall condemnation of reasonable pay for a reasonable job for those at the top of the responsibility ladder. It is merely an acknowledgement that asking Americans to bail out mismanaged companies without disturbing the financial arrangements of those in charge of these failures is an indefensible plan. It should never even have been considered.
The stupendous bonuses of hedge fund operators that rival the entire budgets of some small countries and the incredible pay packages of Wall Street’s elite have made eight- and nine-figure annual incomes commonplace — until the gluttonous immorality of this binge has come home to roost and put us all in dire straits. If this crisis brings us back to earth and gives us a new understanding that no one could possibly be worth what some have been paid, we all will be better off despite the pain it has caused and is likely to cause before it is over.
(E-mail Dan K. Thomasson, former editor of the Scripps Howard News Service, at thomassondan(at)aol.com.)