Why do executives get paid millions of dollars a year to run a company into the ground? Why do these same executives earn hundreds of millions of dollars in bonuses, stock options and golden parachutes after driving these companies into bankruptcy? I was watching CNBC the other day and saw an alarming statistic. The average CEO’s salary is more than 435 times the average worker’s salary. That is unbelievable. I am an advocate of the whole pay for performance philosophy. But not when CEO’s like Richard Fuld of Lehman Brothers, James Cayne of Bear Stearns, Kerry Killinger of Washington Mutual, Martin Sullivan of AIG, Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac were paid hundreds of millions of dollars in salary and bonus packages to drive their companies into Chapter 11 bankruptcy. Why is it that when a company falls into financial trouble the employees are always the ones who have to suffer the losses?
The latest example of poor management can be found in the US auto industry. Richard Wagoner of GM, Robert Nardelli of Chrysler and Alan Mulally of Ford have been paid millions of dollars to fix the three largest domestic auto manufacturers. They have failed miserably. Their companies are on the verge of going out of business. So you would think they would be willing to take a cut in compensation? Of course not. A CEO would rather lay off 30,000 employees then eliminate his own bonus.
The management of GM, Ford and Chrysler have mismanaged the auto companies and are now seeking 25 billion dollars to stay afloat. I think that if Congress does give the auto manufacturers federal assistance that they will keep doing business as usual. This means laying off a significant number of employees in 2009 while management takes no reduction in compensation. Don’t get me wrong. I think the Federal government should help the auto makers but with some stipulations: (1) management needs to be replaced (2) salaries need to be much more realistic (3) management needs to develop a workable business plan. So what happens to the typical corporate CEO after he is let go from a failing company that he has mismanaged? He is given a signing bonus along with a hefty compensation package at another firm and begins the process all over again.
