Jewish World Review May 7, 2003 / 5 Iyar, 5763
Steve and Cokie Roberts
Royalty knows no shame
http://www.jewishworldreview.com | What would it take to make corporate executives ashamed of themselves? Clearly government, employee and stockholder anger isn't doing the trick. In company after company, the profits go down, the workers get laid off, and the executives rake in huge bonuses and benefits. How can they look at themselves in their gilded mirrors?
The latest outrage comes from almost bankrupt American Airlines. Just as the unions were wrapping up voting on the proposed salary slashes for pilots, mechanics, flight attendants and baggage handlers, news came to light that company bigwigs were quietly attempting to give themselves "retention bonuses" and guaranteed pensions.
The resulting furor forced the ouster of the company's chief operating officer, Donald Carty. But there's no reason to believe his successors will tighten executive belts.
Look at what happened in the wake of the disgrace at Tyco, where stories of former CEO Dennis Kozlowski's over-the-top purchases (a $6,000 shower curtain caused the most amazement) filled the newspapers for a while. Kozlowski and his chief financial officer are both gone, under indictment for allegedly stealing hundreds of millions of dollars from the company. But the man brought in to tidy up the corporate suites still rakes in a sweet $60 million. The company's stock, meanwhile, dropped more than 70 percent last year.
Fortune magazine recently compared stockholder return with corporate pay and found startling disparities. One typical example: David Cote at Honeywell was compensated at $68 million while investors saw returns shrink by 28 percent. Worst are the airline executive salaries still soaring high when twice since Sept. 11 their carriers have been bailed out by the American taxpayer.
That's the same American taxpayer who has seen the number of jobs lost in the last couple of years at the highest level in decades.
That's the same American taxpayer who might also be the American investor. Estimates put investor losses at some $7 trillion since the stock market started falling in 2000. And that's the same American taxpayer who is seeing state services curtailed because government agencies are out of money.
How, when they know all of that, can these executives demand, or even accept, tens of millions of dollars? There's nothing to justify it. These are not athletes bringing fans into the ballpark or stars attracting viewers into the theatres. Most of the overpaid executives had nothing to do with founding their businesses, nor are they inventors or creators, like the mega-rich of past decades. This new class of plutocrats consists mainly of managers. And, judging by the performance of their companies, they're not managing all that well. But even if they were succeeding brilliantly, even if times were flush, these enormous salaries are indefensible, especially when compared to those of the workers. There's something un-American about the disparities between the guys at the top and the men and women who work for them. There's an air of royalty about it. The lives of these executives even take on the trappings of royalty, with their palaces around the world, private planes ready to take them there, and million dollar birthday parties once they arrive.
And, like royalty, there's no accountability. In theory, the managers work for the boards of directors. But many chief executives do double duty as board chairman, which are largely made up of executives from other companies -- people with a vested interest in keeping compensation at astronomical levels. Given the revelations of corporate greed, and the sad state of the market, some shareholders have made attempts to reign in the excess, but shareholder resolutions are not binding on the directors.
At Honeywell's annual meeting, the investment fund Providence Trust put forward a proposal to study the pay disparity between executives and average workers at the high-tech company. The Congregation of the Sisters of the Divine Providence of San Antonio, Texas, runs the Providence Trust. But even being called to task by nuns had no effect. The proposal was voted down.
It will be up to the big institutional investors to put a stop to these ridiculous pay packages. If pension plans or mutual funds start to insist on change then the managers will be forced to respond. Nothing else will make them accountable. Clearly not shame. If a person is willing to see investors lose money and workers laid off and still take home more money than he could ever spend, he feels no shame.
Why not sign-up for JWR's daily update. It's free. Just click here.