Executive Pay

A Whole Lot of CEO Pay Shaking Going On

America’s top executives may have driven the U.S. economy into the ditch. But, hey, that’s no reason they should take a pay cut, it it? They certainly don’t think so.

By Sam Pizzigati

Old habits die hard. Top corporate and Wall Street executives, for over a quarter-century, have been treating their companies and banks as personal piggy banks. Now those firms are flailing and failing. But executives haven’t changed their behavior. They’re still shaking those piggy banks for every last nickel — and million.

IncomeBanks are taking bailout dollars intended for increasing loan activity, say news reports, and putting those dollars into executive bonuses and dividends. Banks are setting aside still other bailout billions for buying up other banks, a tried-and-true Wall Street short-cut for upping revenues and executive earnings.

Other major U.S. corporations, not yet directly involved in the bailout, are also scrambling to keep America’s rapidly slowing economy from depressing executive pay. Corporate boards are rushing this fall to change how they measure executive “performance” — and the new yardsticks they’re adopting let execs claim they’re “performing” fine even if a company’s share price and profits are shrinking.

“With the stock market in tatters,” reports Financial Week, companies are “shunning such traditional incentive-pay factors as earnings per share and net income.”

Among the new CEO performance yardsticks: vague and easily manipulable measures like “customer satisfaction” or progress on meeting “environmental” standards.

These new measures, executive pay experts point out, don’t reflect any new-found corporate interest in public-spirited behavior. Executives, says Deloitte consulting’s Mike Kesner, “are worried about their bonuses.”

Some pension funds and other institutional investors, says AFL-CIO analyst Vineeta Anand, will be pushing back at these corporate compensation games at the next round of annual shareholder meetings. And some lawmakers in Congress are beginning to stir, too.

Last Tuesday, House Oversight Committee chair Henry Waxman asked major banks getting bailout dollars to reveal just how much they’re planning to spend on end-of-year bonuses. Goldman Sachs, Morgan Stanley, and Merrill Lynch, Bloomberg notes, have “already set aside $20 billion to pay bonuses this year.”

The bailout bill that Congress blessed last month doesn’t prohibit bonus payouts. The bailout bill does prohibit financial companies that accept taxpayer dollars from increasing their dividends — without getting government permission. But Bush administration officials, the Washington Post reports, are granting that permission.

In all, 33 banks in the bailout will now be shelling out $7 billion in dividends over 2008’s last three months.

Other nations are putting “strings” in their bailouts to prevent this sort of executive wallet-stuffing. Britain and Germany, for instance, are requiring that bailout-out banks suspend dividends until taxpayers get their money back.

Will Congress follow suit — on dividends or any other executive pay front? One good sign: On Wednesday House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid asked Treasury Secretary Henry Paulson to “seriously consider strengthening the restrictions on executive compensation” in the ongoing bailout.

Even some GOP Congressional leaders are getting restless.

“Funds made available under the economic rescue package,” House Minority Leader John Boehner told Paulson in another letter, “should not be used to pay for bank acquisitions, raises, and executive bonuses.”

But federal lawmakers are so far not pushing any specific legislative limits on executive pay. Local lawmakers, by contrast, are. Two Chicago aldermen have introduced an ordinance that would ban the city from doing business with any bank getting bailout dollars that pays executives over $400,000 per year.

Under the proposal, Chicago would not deposit city funds in, buy investment securities from, or float bonds through bailout banks that overpay their execs. Chicago last year issued $2 billion worth of municipal bonds.

“I’m fed up with what I’ve seen on Wall Street,” says one of the measure’s sponsors, Edward Burke. “The greed of investment bankers has pushed this nation to the very brink of a depression.”

Sam Pizzigati, an associate fellow at the Washington, D.C.-based Institute for Policy Studies, edits Too Much, the online weekly on excess and inequality.

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