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Too Many Overpaid CEOs Are Really Smooth Operators Who Produce Little

By Ed Bagley

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Published: 29Aug2008
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Copyright © 2008 Ed Bagley

When you understand that the average CEO in America makes 400 times what the average worker makes, you could get upset. When you have an environment where chief executive officers of companies can rack up a pitiful financial performance and still continue to rake in millions of compensation for being essentially incompetent, it is even more upsetting. What are we to do?

Now imagine if you were a stockholder of that same company as well as an average American worker. Many employees do put a part of their 401K retirement investment funds into stocks of the company they work for, or another company. Now imagine that you are an Enron employee. Go ahead, get really upset.

If you worked for Enron you would already know what I am about to share with you.

Enron was an American energy company before its bankruptcy in late 2001. Enron claimed to be one of the world's leading electricity, natural gas, pulp and paper, and communications companies, claiming revenues of $111 billion in 2000.

Using the words "claimed" and "claiming" in the prior sentence was not an accident. Enron was about to explode. Enron executives had fooled a lot of investors. Even the prestigious business magazine Fortune named Enron "America's Most Innovative Company" for 6 consecutive years. By the end of 2001 it was clear that Enron's financial condition was sustained substantially by an institutionalized, systematic and creatively planned accounting fraud.

On a broader scale, it became fashionable in corporate America to "cook" the books in an attempt to raise stock prices to fuel exorbitant payouts for executives who were purposefully lying, cheating and stealing from customers and investors (stockholders). This practice continues in corporate America today on a hopefully much lesser scale by those who have not already been caught.

Imagine again an environment today where chief executive officers of companies who appear to be operating legally can rack up a pitiful financial performance and still continue to rake in millions of compensation for being essentially incompetent on the job.

In June of this year the Associated Press released an article identifying the 10 highest-paid CEOs for 2007 at Standard & Poor's 500 companies. The total pay figures were rounded and were based on the AP's compensation formula, which added up salary, perks, bonuses, above-market interest on pay set aside for later, and company estimates for the value of stock options and stock awards on the day they were granted last year.

Here are the 10 best-paid chief executives for 2007:

1) John Thain of Merrill Lynch - $83+ million.

2) Leslie Moonves of CBS - $67+ million.

3) Richard Adkerson of Freeport-McMoRan Copper & Gold - $65+ million.

4) Bob Simpson of XTO Energy - $56+ million.

5) Lloyd Blankfein of Goldman Sachs Group - $53+ million.

6) Kenneth Chenault of American Express - $51+ million.

7) Eugene Isenberg of Nabors Industries - $44+ million.

8) John Mack of Morgan Stanley - $41+ million.

9) Glenn Murphy of Gap - $39+ million.

10) Ray Irani of Occidental Petroleum - $34+ million.

And you thought Alex Rodriguez of the New York Yankees made a lot of money at $27.5 million a year! Make no mistake, business rules and it is not even close.

So let's look at John Thain and his $83.1 million in compensation from Merrill Lynch for 2007. After all, 83.1 million is approximately $1.6 million a WEEK in compensation, or more than $300,000 a DAY for a 5-day work week.

If I were a Merrill Lynch stockholder (and I am not), I would be looking at the 2007 financial statement, which shows Merrill Lynch with a net loss from continuing operations of $8.6 billion (that is billions, not millions). Merrill Lynch had net earnings of $7.1 billion in 2006, so that is a difference of $15.7 billion in one year on the wrong side of the ledger.

Well, I am sure that Mr. Thain has a smooth answer for his performance, whatever it is. I hardly think his answer merited $83.1 million in compensation for going backwards.

If Thain's $83.1 million in annual compensation sounds really high to you, let me introduce you to Chief Executive Stephen Schwarzman of Blackstone Group LP, who received $400 million in compensation in 2006. Since there are at least 365 days in a year, that averages out to more than $1 million a DAY in compensation. Yes, some folks make a lot more than others.

Another glaring example is Bob Nardelli, who apparently did not even make the top 10 best-paid executives for 2007. He nonetheless was given a $210 million exit package (in plain language I think that means fired) by Home Depot.

Nardelli was considered a superstar CEO when Home Depot hired him 6 years earlier. All Nardelli managed to do in his 6 years was watch the company stock languish and lose market share to Lowe's. Yeah, that Nardelli is really a top executive.

"There are certain instances where pay is so excessive and the breach of trust that the board has with shareholders is so terribly broken, it's an outrage," said Rich Ferlauto of the government labor union AFSCME. Well said, Rich.

And so here we are in 2008: The subprime mortgage debacle driven by the greed and avarice by corporate executives has our economy in a free fall—Bear Stearns (a major investment banker and securities and trading brokerage firm) and IndyMac (a bank) have collapsed, Freddie Mac and Fannie Mae are in serious trouble, dozens of other banks and financial institutions are on thin ice, gas prices have skyrocketed out of sight, and food costs are rising faster than a flooding river.

Is all of this the fault of Thain and Nardelli? Of course not. Thain and Nardelli are simply examples of CEOs that are overpaid and underachieved greedy executives.

It may in fact be the failed system of many corporate CEOs and a lack of government regulation that led to America's current slide into an official recession. If it is, big-time executives and politicians have some major amends to make. After all, they get big salaries and perks to run the show, we are just the workers who suffer from their greed and lack of judgment and incompetence.

Read my articles on last year's football season, including "Famous Quotes by Knute Rockne During Football's Annual Bowl Season" "The Sagarin Ratings: What They Are, How to Read Them and What to Do With Them" and my 14 consecutive weekly wrap-up articles on the 2007 College Football Season as well as wrap-up articles on all 32 College Bowl Games. Find me at: http://www.edbagleyblog.com http://www.edbagleyblog.com/Sports.html

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