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MILSTEAD: Kings of Wall Street reap billions

By David Milstead, Rocky Mountain News (Contact)

Published September 30, 2008 at 10:12 p.m.

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Apparently, there was enough bad stuff in the financial bailout bill for enough members of the House of Representatives to send it and their constituents' 401(k)s packing Monday.

We have neither space nor time here to examine all of its working (or nonworking) parts. Instead, let's focus on one element, judged important by many Democrats particularly: the limits on executive compensation at companies that would participate in this new, marvelously munificent social program.

The details are nearly unimportant: The Treasury Department was to write rules that limited incentives, allowed "clawback" of ill-gotten pay, prohibited golden parachutes and created tax deduction limits for compensation above $500,000. (It could do nothing to stop the big paychecks already handed out to the CEOs whose institutions failed.)

All fine. Unfortunately, executive pay is on a runaway gravy train that can never be stopped, no matter what Congress or ordinary investors do.

We know this in Colorado, even though our small corporate base has produced few mega-payouts.

Each year, the Rocky's annual executive-pay survey dutifully quotes the compensation consultants who say boards are getting tougher, incentive hurdles are higher and a new era is dawning.

And each year, executive pay, by nearly any measure, skyrockets. In 2007, the median compensation figure for the 50 best-paid Colorado executives was $7.66 million, up 25 percent from 2006's $6.11 million. By contrast, we estimated the average wage in Colorado in 2007 at roughly $45,000, about 3.5 percent above 2006.

Part of the nationwide problem comes from the legislative impulse that was nearly exercised Monday. Back in the day when $1 million seemed like an excessive figure, Congress limited the tax-deductibility of pay above the million mark - unless, of course, it was incentive-based.

The subsequent explosion of stock options and the millions they created for the managerial class were no coincidence.

That's not the biggest issue with runaway pay, however. Alpha magazine found it took $360 million to crack the top 25 in its list of best-paid hedge-fund managers. The No. 1 hedge-fund manager made $3.7 billion, and Alpha noted five of the managers each made more in 2007 than the $1.2 billion that JPMorgan Chase & Co. agreed to pay for Bear Stearns.

As long as the folks who are buying and selling billions of dollars worth of stocks are taking home that kind of money, CEO pay measured in the mere millions is chump change. They're the hired help for the real kings of Wall Street.

David Milstead and James Paton take turns writing Up and Down 17th Street.

Comments

  • October 1, 2008

    8:23 a.m.

    Suggest removal

    intothelens writes:

    I am thoroughly disgusted. This mega-pay is a social injustice. It's on the same level as welfare $$$ going to those who refuse to work or feign disability, or insurance companies pandering to their shareholders rather than their patients. And, frankly, I hope whichever government evolves out of the elections will take steps toward correcting these injustices. Whether the problems were partially created by governments past is not relevant. These cancers to the system -- and our economy -- are not going to take care of themselves.

  • October 1, 2008

    9:34 a.m.

    Suggest removal

    mmannino writes:

    This article is pure class envy. Executive compensation is an agreement between a board of directors and an executive. There is a market for executives. Boards of directors must respond to this market. Perhaps there is a need to change some corporate governance rules. This article does not make any such proposals however. Executives reaping excessive compensation through corporate crime is a different issue. We have plenty of laws involving compensation and corporate misdeeds. Top executive talent is not different than top talent in other areas. There is a large gap between the top performers and average performers. The increase in compensation for top talent in other areas (entertainment, sports, and media) is not different than the increase in executive compensation.

    The current bailout issue is different. With a large infusion of taxpayer funds, there will obviously be additional restrictions on corporate compensation.

    Executive compensation is not the reason for the economic slowdown. Energy prices are a major factor, both global demand and lack of domestic energy production. Government policies encouraging lending to poor credit risks and lack of regulation of the derivatives market are primary drivers of the housing situation. The accounting problems at Fannie and Freddy along with political manipulation of these institutions is a direct result of government policies. The derivatives market especially in the mortgage area must be limited. The amount of leverage is out of control.

  • October 1, 2008

    12:35 p.m.

    Suggest removal

    P_Denver writes:

    The stupidity of boards of directors is truly appalling. They hire a CEO for millions of dollars, that person fails, then they hire another CEO for even more money - hoping for success.

    "Hope is not a strategy" is a business saying ... but evidentially not for boards of directors.

    All the CEO wants to do is manipulate the company's stock price to maximize their option values ... at any cost. They get their multi-million-dollar salaries, cash in their options, and vanish.

    The CEO tells the workers: "You, too, can benefit from the stock price. Buy stock. Invest in our 401(k). You will gain!"

    Of course, the piddley few shares the employee base gets is 1% of what the executives get, but it's good public relations.

    The adage "you get what you pay for" may have been true in our grandparent's day ... but in this age of golden parachutes it's an outdated cliché regarding CEO salaries.

    Cap CEO pay packages -- pay, bonuses and options -- at 1,000 times what the minimum-paid worker for the company gets. That's plenty for anyone. Anyone! Public company or private company. Let's see what happens then.

  • October 9, 2008

    8:27 a.m.

    Suggest removal

    thincaboutit writes:

    FINANCIAL CRISIS: THE MUSICAL
    The economy is no laughing matter. But this parody about the economy is.
    Check it out at:
    http://www.youtube.com/watch?v=henMX3...