[1]Citigroup execs canceled an order for a French-made Dassault Falcon 7X only after it was shouted in their tin ears that taxpayers were irate at being stuck with the tab.
Every day in the lobby of the Charles F. Knight Executive Education & Conference Center at Washington University’s Olin Business School are buffet tables laden with hot coffee and tea, cold juices, fresh fruit and candy, little tidbits for hard-working students, teachers and staff to nosh on.
There are Oriental rugs on the floors, lounge areas and reading nooks. Upstairs is a 66-room hotel for traveling executives, complete with complimentary beverage service, concierge service and conference rooms wired with high-speed Internet service, copy and fax machines and laser printers.
Thus, even at the larval stage of an executive’s career, he or she is being prepared for the good life. Later on, if the young executive is good at his work (and sometimes, even if he isn’t) there will be other perks: limousines, private jets, executive chefs, $35,000 commodes and — best of all — year-end bonuses.
That is, unless Claire McCaskill messes up everything.
On Friday, the Missouri Democrat took the floor in the U.S. Senate to introduce a bill that would limit executive compensation in firms receiving federal financial bailouts from earning any more than $400,000 — what the president makes.
“Now once they’re off the public dole, once the taxpayers aren’t footing the bill, then it’s not as much our business what they get paid,” Ms. McCaskill said. “But right now they’re on the hook to us. And they owe us something other than a fancy waste basket and $50 million jet.”
This is, as we say in Missouri, “Claire being Claire.” She gets mad, says something outrageous and later, after she calms down, works for reasonable accommodation with the people she has blasted. But for the time being, she is a populist heroine, having touched a nerve that’s raw and getting rawer.
Over the past three decades, a bizarre sense of entitlement has governed executive compensation. As long ago as 1991, in the book “In Search of Excess,” the executive-pay consultant Graef S. Crystal identified the problem:
“Huge and surging pay for good performance and huge and surging pay for bad performance, too. After all, if you are going to pay people highly in good times, because they deserve it, and if you are going to pay people highly in bad times, because you need to keep them with the company, just when is it that you are ever going to cut their pay?”
Answer: You’re not. So corporate boards, made up of friendly executives, continued handing out huge salaries, bonuses and stock options. With stock prices going ever upward, people got the idea they were “worth” $100 million a year simply because other people were “worth” $100 million a year. And up.
The notion that executives were special became so entrenched that today, many executives can’t understand why anyone would challenge it. This explains the why so many of them have a tin ear about public outrage.
There will be some form of cap on executive compensation in the forthcoming economic stimulus bill. That’s important, but the larger issue is the long-term trend in executive compensation, and that will require a shareholder revolt. Not all public companies — and surely not many on Wall Street — tie compensation to performance.
The Wall Street Journal reports that America’s five biggest securities firms last year had a combined loss of $25.3 billion, yet paid bonuses of $26 billion. If everyone had made it on salary alone, they would have finished $700 million in the black.
A fairer system could include increasing base salaries and tying all deferred payments — stock options, bonuses and the like — to the creation of measurable, real value. Federal regulations should be crafted to limit boards from concocting bogus reasons to award incentives that aren’t earned.
It would nice if we could legislate some humility, too, but of that we have small hope.